UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_________
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-22436
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Delaware Lady Luck Gaming Corporation 88-0295602
(State or other jurisdiction of (Exact name of Registrant as specified in its charter) (I.R.S. employer
incorporation or organization) identification number)
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206 North Third Street, Las Vegas, Nevada 89101
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including
area code: (702) 477-3000
__________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock of Lady Luck Gaming Corporation ($.001 par value)
(Title of class)
__________
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of each registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. | |
The aggregate market value of the Common Stock, $.001 par value, held by
non-affiliates of the registrant, Lady Luck Gaming Corporation, on March 10,
1998, based on the closing sale price as reported by NASDAQ National Market
System, was approximately $10,900,148. Shares of Common Stock held by each
officer and director and by each person who owns 5% or more of the outstanding
Common Stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of March 10, 1998, 29,285,698 shares of the registrant, Lady Luck Gaming
Corporation's, Common Stock, $.001 par value, were outstanding.
The registrant, Lady Luck Gaming Corporation's, proxy statement for its
1998 Annual Meeting of Shareholders is incorporated by reference herein into
Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS.
All statements contained herein that are not historical facts, including
but not limited to, statements regarding the Company's current business
strategy, the Compan'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 its Indenture
covering the First Mortgage Notes due 2001 (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.
General
The operations of Lady Luck Gaming Corporation ("LLGC"), a Delaware
corporation, and its subsidiaries (collectively the "Company") primarily include
those of LLGC, Lady Luck Gaming Finance Corporation ("LLGFC"), a Delaware
corporation; Lady Luck Mississippi, Inc. ("LLM"), Lady Luck Biloxi, Inc.
("LLB"), Lady Luck Gulfport, Inc. ("LLG"), Lady Luck Vicksburg, Inc. ("LLV")
Magnolia Lady, Inc. ("MLI"), Old River Development, Inc. ("ORD") and Lady Luck
Tunica (LLT), each a Mississippi corporation (collectively the "Mississippi
Companies"); Lady Luck Central City, Inc., formerly Gold Coin Incorporated
("LLCC"), a Delaware corporation; Lady Luck Kimmswick, Inc. ("LLK"), a 93% owned
Missouri corporation; Lady Luck Quad Cities, Inc. ("LLQC"), a Delaware
corporation; and, L.L. Gaming Reservations, Inc. ("LLGR") a Nevada corporation.
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 with Bally's Entertainment Corp. ("Bally's").
The Company directly or indirectly owns and operates dockside, land-based
and riverboat casinos and related projects in recently created gaming
jurisdictions. As of December 31, 1997, the Company owns and operates one
dockside casino and a hotel in Natchez, Mississippi ("Lady Luck Natchez" and the
"River Park Hotel", respectively), one dockside casino in Biloxi, Mississippi
("Lady Luck Biloxi"); two dockside casinos, one hotel and an entertainment
complex in Coahoma County, Mississippi ("Lady Luck Rhythm & Blues", "Country
Casino", the "Rhythm & Blues Hotel" and the "Pavilion") and one hotel in nearby
Helena, Arkansas (the "Riverbluff Hotel") (collectively the "Lady Luck Rhythm &
Blues/Country Casino Complex"); and, through a 50% owned joint venture (the
"Bettendorf Joint Venture"), a riverboat casino in Bettendorf, Iowa ("Lady Luck
Bettendorf") (collectively the "Operating Properties"). Effective September 30,
1997, the Company sold its 35% equity investment in a dockside casino and a
hotel in northern Tunica County, Mississippi ("Bally's Saloon & Gambling Hall")
to Bally's; and, effective February 19, 1998, the Company sold substantially all
of the assets related to its land-based, limited stakes casino in Central City,
Colorado ("Lady Luck Central City") (collectively the "Casinos Sold").
The Company also has dockside or riverboat casino projects in various
stages of development in Kimmswick, Missouri (the "Missouri Project"),
Vicksburg, Mississippi (the "Vicksburg Project") and has applied for a
destination gaming license in Vancouver, British Columbia (the "Vancouver
Project") (collectively the "Development Stage Projects"). As of December 31,
1997, the Company has net remaining capitalized investments of $2.9 million and
$8.2 million, after any project development cost write-downs and reserves and
other losses to date, respectively, in the Missouri Project and Vicksburg
Project. The Company has not capitalized any costs with respect to the Vancouver
Project.
The Company is also in the pre-development stage of a casino project in
Scott City, Missouri (the "Pre-development Stage Project"). As of December 31,
1997, the Company has invested $1.0 million of capital in the Pre-development
Stage
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Project (which was expensed each year as incurred) and does not anticipate
investing additional material amounts of capital prior to licensing.
The Company owns and leases a cruising vessel and certain gaming equipment
to Lady Luck Bettendorf. The Company has reached an agreement to sell the gaming
equipment to Lady Luck Bettendorf effective January 1, 1998. The Company
operates a central reservations center in Phoenix, Arizona which books
reservations for the Company's hotels.
Previously, the Company had planned to construct and operate a casino in
Gulfport, Mississippi (the "Gulfport Project"). However, due to increased
competition in the Gulfport gaming market, in 1997 the Company suspended further
development of the Gulfport Project. Prior to suspension of the Gulfport
Project, certain leases were executed, all of which the Company intends to
cancel at the earliest date permitted pursuant to the lease agreements.
Operating Casinos
Lady Luck Rhythm & Blues, Country Casino and the Pavilion. MLI commenced
dockside gaming operations of Lady Luck Rhythm & Blues on June 27, 1994 in
Coahoma County, Mississippi, commenced operation of an adjacent 173- room hotel
on August 16, 1994, commenced gaming operations of Country Casino and operation
of 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. Coahoma County,
Mississippi is located approximately 120 miles southeast of Little Rock,
Arkansas and 60 miles southwest of Memphis, Tennessee, on the Mississippi side
of the Helena Bridge, which crosses the Mississippi River and connects Arkansas
and Mississippi. Lady Luck Rhythm & Blues has a Las Vegas-style Rhythm & Blues
theme and is constructed on two adjacent barges. One barge has three
restaurants, while the other barge, together with the Las Vegas-style Country
themed Country Casino barge, has 58,000 square feet of gaming space. The gaming
space includes, as of December 31, 1997, approximately 1,333 slot machines, 50
table games, six poker tables, a casino lounge and a full service restaurant
under construction. The Pavilion consists of approximately 25,000 square feet of
entertainment and event space, two movie theaters, an arcade and a logo shop.
Based upon operating results, these combined operations are currently the most
profitable of the Operating Casinos.
During 1997, construction began on a full service restaurant to replace the
existing food court in Country Casino because management believes the further
development of Country Casino as a destination property will further enhance the
combined operations of the Lady Luck Rhythm & Blues/Country Casino Complex. In
order to meet peak demand, and enhance access to Country Casino, MLI intends to
modify traffic patterns and add additional paved parking areas for 360
automobiles and 15 tractor-trailers in 1998. In addition, site-work began in
late 1997 for a hotel next to the Country Casino; however, there can be no
assurance that the Company will ultimately construct such hotel or obtain
necessary financing on acceptable terms for such construction. MLI also intends
to make various other improvements in 1998 such as remodeling portions of the
casino and installing a new property-wide PBX system for more efficient
communications and lower operating costs.
Lady Luck Natchez. Lady Luck Natchez commenced operations on February 26,
1993. This dockside casino is located on the Mississippi River at the
intersection of Highway 61, a north-south highway connecting Natchez,
Mississippi and Memphis, Tennessee, and Highway 84, an east-west highway which
runs parallel to and is between Interstates 10 and 20. Lady Luck Natchez
consists of a three story dockside facility with approximately 14,300 square
feet of gaming space and access to 500 dedicated parking spaces. The gaming
space, as of December 31, 1997, features 624 slot machines, 16 table games and
four poker tables. LLM purchased the River Park Hotel, a 147-room hotel in
Natchez, on April 15, 1996.
The Company has remodeled portions of the River Park Hotel, including the
replacement of certain furniture and equipment. Lady Luck Natchez intends to
complete various improvements and renovations during 1998 including: (i) the
addition of a gourmet restaurant located in close proximity to the casino; (ii)
remodeling of the casino and buffet; (iii) refurbishing of certain rooms at the
River Park Hotel; and (iv) the addition of 260 parking spaces within walking
distance of the casino.
Lady Luck Bettendorf. Lady Luck Bettendorf commenced operations on
April 21, 1995. Lady Luck Bettendorf is located on a leased parcel of land which
is adjacent to Interstate 74 on the Mississippi River (the "Bettendorf Site").
The Bettendorf Site is approximately six miles from its primary competitor, the
Presidents Landing Casino in Davenport, Iowa, which together with Lady Luck
Bettendorf comprised approximately 89% of the gaming market in that area in
1997. Lady
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Luck Bettendorf consists of an approximately 30,000 square foot casino on a
riverboat gaming vessel which is approximately 300 feet by 100 feet. Other
related facilities include a restaurant, gift shop, a showroom/entertainment
area for parties and special events. As of December 31, 1997, the casino has 941
slot machines, 37 table games and seven poker tables. The vessel has gaming
operations on three floors. The first floor has a 19th century Iowa river theme,
the second floor has a sports theme and the poker room is on the third floor.
The vessel is certified for 2,500 passengers including crew.
The Company is currently expanding Lady Luck Bettendorf at a cost of
approximately $39.5 million. Construction of the initial phase of such
expansion, which includes a 260-room hotel with a fully enclosed walkway to the
riverboat casino, an indoor pool and fitness center and restaurant facilities,
began June 23, 1997 and is scheduled to be completed in the Fall of 1998. In
conjunction with this expansion, the City of Bettendorf, Iowa will provide $7.5
million of the funds necessary to complete various infrastructure improvements
including a 500-space parking garage, a 30-50 slip marina and a traffic overpass
to improve access. The project financing is non-recourse to the Company.
BRDC is leasing certain real property to the Bettendorf Joint Venture. The
Company owns and leases a cruising vessel and certain gaming equipment to Lady
Luck Bettendorf for approximately $189,000 and $122,000, respectively, per
month. These leases were determined based upon arms-length negotiations between
the Company and BRDC. The equipment was sold to the Bettendorf Joint Venture
effective January 1, 1998 for its fair market value of $712,000.
All net profits and losses from all operations of Lady Luck Bettendorf are
allocated equally between the Company and BRDC. The Company has also been
granted the right to manage Lady Luck Bettendorf pursuant to a management
agreement for a fee equal to 2% of gross revenues plus 7% of EBITDA (as defined
therein) not to exceed 4% of annual casino gross revenue (as defined therein)
generated by Lady Luck Bettendorf, less $37,500 per month. BRDC provides
consulting services to the Company concerning licensing, staffing and management
of the marine aspects of the gaming vessel and any land based development. All
consulting fees paid to BRDC (which will be based upon Lady Luck Bettendorf's
gross revenues and will not exceed $325,000 annually) will be paid by the
Company out of its management fee. The Bettendorf Joint Venture is operated by a
group of four managers. Each of BRDC and the Company have appointed two
managers. Most management decisions, including capital calls and distributions,
are determined by a majority of the managers.
Lady Luck Biloxi. Lady Luck Biloxi commenced operations on December 13,
1993. Biloxi is a beach resort town on the Gulf of Mexico. The casino has had an
Asian theme and is located adjacent to Highway 90, approximately 60 miles east
of New Orleans, Louisiana. Lady Luck Biloxi consists of a two story dockside
facility with approximately 21,000 square feet of gaming space. As of December
31, 1997, the gaming space includes 667 slot machines and 19 table games. Other
amenities include a coffee shop/buffet, a lounge bar, a gourmet restaurant and a
logo shop.
The Company commenced a renovation of Lady Luck Biloxi in late 1997 which
will include a change in its theme from Asian to a beach theme. In addition the
Company is revising its master plan for the property, and seeking a joint
venture partner to complete the project.
The revised master plan for the Biloxi project envisions a redevelopment of
the existing site, including a 300+ room hotel, restaurant, retail and
entertainment mall, and 1,000 car parking garage, to be developed on the gulf
side of Beach Boulevard. Gaming space would be increased on the existing barge.
Total estimated costs are approximately $60.0 million. While the Company
continues to explore various alternatives for the redevelopment of the Biloxi
property, there can be no assurances that a satisfactory joint venture will be
consummated or that the Company will obtain requisite financing.
Development Stage Projects
In addition to its Operating Casinos, the Company has two dockside or
riverboat casino projects and one land-based casino project in various stages of
development. The current status of each of these Development Stage Projects is
described below.
The Missouri Project. The first two phases of the project, as planned,
include a land-based hotel and casinos onboard two separate vessels (the
"Missouri Project"). 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").
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In 1997, LLK and Davis Gaming Company II ("Davis") mutually agreed to
dissolve an agreement of general partnership to form a joint venture to operate
the Missouri Project because the State of Missouri had not issued the project a
gaming license on or prior to May 31, 1997. The Missouri Gaming Commission
investigates applicants at its discretion and there can be no assurance that the
Company's application will be actively reviewed in future periods. LLK retained
the rights to the Kimmswick Site and owns the Missouri Project's assets.
As of December 31, 1997, the Company has expended approximately $8.5
million on the Missouri Project, consisting of approximately $6.0 million for
construction of a partially completed cruising vessel and approximately $2.5
million in other related development costs. The net investment remaining is
approximately $3.0 million after project development cost write-downs and
reserves and other losses. The partially completed cruising vessel intended for
the Missouri Project could be used without the cruising equipment if not
required. However, due to this potential design change and the Company having
halted construction activity, completion of the vessel pursuant to the original
contract terms might not be possible. The Missouri Project is estimated to cost
an additional $93.1 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, an amendment to the permit might be necessary due to changes in
the proposed project design subsequent to receiving the permit.
During 1997, the Company continued its efforts towards obtaining a license
for the Missouri Project and provided updated information to the Missouri Gaming
Commission. However, 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
overly 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 fears of competitive saturation; and, (iv)
regulatory factors, including loss limits which 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 (the "Vicksburg Site").
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; (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.
A gaming license was granted to LLV on August 18, 1994 and has subsequently
been renewed. As of December 31, 1997, the Company has invested approximately
$14.4 million in the Vicksburg Project with a net investment remaining of
approximately $8.2 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 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. The
Company does not believe that all of the Conditions will be satisfied prior to
the Termination Date. While the Company does not currently intend to
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terminate the Horseshoe Joint Venture Agreement, 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 (the "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.
An affected landowner on the Big Black River sued the Commission after it
rejected the site, and in the fourth quarter of 1997, a circuit court found the
site suitable. The Commission and City of Vicksburg have appealed the circuit
court decision to the State Supreme Court.
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 Company had previously entered into a management
agreement with the Coquitlam Band to develop and manage a gaming facility to be
located on tribal land approximately eight miles from downtown Vancouver,
British Columbia, Canada. This agreement has been mutually terminated.
The Province of British Columbia (the "Province"), through its Lotteries
Advisory Committee (the "LAC") subsequently sent to interested parties 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. Bingo halls may also be included in the projects. 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 $25.0-30.0
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. The
Company is negotiating a development agreement with the Tsawwassen First Nation
as host community, and expects to have it completed during the second quarter of
1998. The Company believes that the LAC will make selections of successful
proponents during the second 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 agreements with the Tsawwassen First Nation and Province
of British Columbia can be successfully negotiated or that financing can be
obtained. As of December 31, 1997, the Company has invested approximately
$500,000 of capital in these projects (which was expensed when incurred) and
does not anticipate investing additional material amounts of capital prior to
licensing.
Pre-development Stage Project
The Scott City Project. The Company is in the pre-development stage of a
casino project in Scott City, Missouri. Scott City is approximately 150 miles
south of St. Louis, Missouri, along Interstate 55. The project is expected to
consist of a gaming vessel, a 200-room hotel, an outlet mall, an athletic
complex and an 18-hole golf course (the "Scott City Project").
The Company has been endorsed by, and entered into a development contract
with, the City of Scott City to be the exclusive casino operator for a three
year period in Scott City. The Company has filed an application for a gaming
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license with respect to the Scott City Project. However, the Missouri Gaming
Commission investigates applicants at its discretion and there can be no
assurance that the Company will be selected for licensing.
In addition, during 1997, the Company let options on property intended for
the development of the Scott City Project expire. This was based on the
uncertainty as to whether the site would be found suitable by the Missouri
Gaming Commission. The Company has elected to pursue identification of another
site that would be found suitable by the Missouri Gaming Commission, but has yet
to identify and control a site. There can be no assurance that the Company will
find a suitable site for the Scott City Project.
As of December 31, 1997, the Company has invested approximately $1.0
million of capital in this project (which was expensed when incurred) and does
not anticipate investing additional material amounts of capital prior to
licensing. The Company estimates that the Scott City Project will cost
approximately $65.0 million to complete.
Casino Operations Sold
Lady Luck Central City. 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 note which, as of December 31,
1997, had a $2,750,000 balance. The sale resulted in a loss of $7,287,000,
including reserves for certain remaining real property leases.
The Bally's Joint Venture. The Company entered into 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 owner of
the property. Pursuant to a Partnership Interest Redemption Agreement, on
November 3, 1997, the Company received $15,250,000 cash. The sale resulted in a
loss of $1,912,000 which represents the difference between the sales price and
the Company's net investment in the Bally's Joint Venture and related assets at
the time of sale.
Marketing
The Company's marketing strategy is to target middle-market, value-oriented
gaming customers and to employ systematic marketing programs to attract and
retain customers. The Company uses general marketing approaches to attract first
time customers to its casinos by advertising its slot player club program,
popular entertainment and other promotions. Once customers enter the Company's
casinos, the Company attempts to capture the name and playing level of every
slot machine and table game player, regardless of their level of play. The
Company uses this information to treat every player as a VIP by sending them
follow up promotions based on their level of play. The Company believes that
utilizing the Lady Luck name, combined with these personalized database driven
marketing programs, will create a strong brand image synonymous with quality
gaming facilities, service and food.
Initially, the Company focuses on targeting the local and drive-in markets
surrounding each of the Operating Casinos. To attempt to create a positive image
and maintain awareness of the Operating Casinos, the Company utilizes direct
mail, television, radio, billboard and newspaper advertising. To target local
residents, the Company's promotions emphasize the appetizing food, friendly
service, a high paying slot player club program, and the latest in gaming
technology. The goal of the Company's marketing program is to capture the name,
level of play and preferred games of every customer that either (i) plays slot
machines or table games; (ii) responds to an advertisement or redeems a coupon
book; or (iii) is recommended by another customer. The Company uses this
information to treat every customer as a VIP, regardless of the customer's
playing level. Utilizing a similar strategy, Gemini, as defined below, and the
Company's Operating Casinos have built a database of over one million customers.
Management believes the Company benefits from utilizing the names on this
database to target potential customers. The Company uses this data, as well as
the data collected at the Company's other casinos, to implement direct-mail
marketing programs designed to increase the frequency of casino patron visits.
The Company expects to continue to build a detailed database by utilizing
customer tracking systems.
As the markets surrounding the Company's Operating Casinos continue to
mature, the Company has expanded its focus to encompass the surrounding tourist
markets of each Operating Casino. The Company utilizes and continuously monitors
the effectiveness of direct mail, television advertising, newspapers, billboards
and tourist magazines placed in the surrounding areas to increase the Operating
Casinos' visibility and to promote the image that these casinos are part of the
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history and romance of riverboats of the past. Management believes that the
advent of casino gaming will increase the current length of a tourist's stay as
well as increase the number of tourists into some areas. The Company also works
with local organizations with the goal of promoting the areas to increase the
number of tourists.
License Agreements
Effective January 1, 1996, the Company entered into several agreements with
certain entities controlled by Mr. Tompkins, Chairman of the Board and Chief
Executive Officer of the Company replacing other agreements which were less
favorable to the Company. Under a marketing agreement (the "License Agreement")
with International Marco Polo Services, Inc., formerly known as Lady Luck
Casino, Inc. ("IMPSI"), a corporation owned and controlled by Mr. Tompkins, the
Company pays an annual licensing fee with respect to the Lady Luck name and the
mailing list developed by Gemini, Inc. ("Gemini"), a subchapter S corporation
wholly owned by Mr. Tompkins which does business as Lady Luck Casino/Hotel in
Las Vegas, Nevada, to IMPSI. The licensing fee is equal to the greater of (a) 9%
of the Company's EBITDA (calculated as EBITDA of the Company and all its
subsidiaries and joint ventures (multiplied, in the case of the Bettendorf Joint
Venture and the Missouri Project by the interest owned by the Company),
excluding, among other things, all revenues and expenses arising from any casino
or casino/hotel for which the Company is not the operator and which does not
utilize the mailing list or Lady Luck name and excluding revenues from the lease
of equipment owned by the Company to third parties or unconsolidated entities),
and (b) $1,700,000 per year (as adjusted based on the U.S. Consumer Price Index
Urban Annual Percent Change as published by the U.S. Department of Labor Bureau
of Labor and Statistics from year to year (the "Consumer Price Index"). The
Company has agreed to use the Lady Luck name on all existing and future casinos
which it operates. The License Agreement provides that during any period of
default in the payment of principal of or interest on the Company's 11 7/8%
First Mortgage Notes due 2001 (the "2001 Notes"), the Company will not pay (but
will accrue on its books) any licensing fee due to IMPSI. For the year ended
December 31, 1997, the licensing fees payable to IMPSI by the Company were
approximately $2,989,000.
Pursuant to an office lease with Gemini, the Company pays Gemini the sum of
$300,000 per year as adjusted based on the Consumer Price Index for corporate
office facilities and certain services with respect to such corporate office
facilities. In addition, the Company reimburses Gemini for the approximate
retail value of rooms, food and beverages, and other items provided to the
Company by Gemini. Net rent expense and items reimbursable to Gemini during the
year ended December 31, 1997 were $408,000.
Marco Polo International Marketing, Inc. ("MPIM"), a wholly owned
corporation of Mr. Tompkins, provides marketing services to the Company pursuant
to a services agreement between MPIM and the Company. Mr. Uboldi, the Company's
President and Chief Operating Officer and director of the Company, is the
president of MPIM. Net marketing services received by the Company from MPIM
during the year ended December 31, 1997 for certain allocated payroll, overhead,
direct advertising and marketing costs were $748,000.
With respect to the Bettendorf Joint Venture, pursuant to an assignment and
assumption agreement between IMPSI and the Company, IMPSI assigned to the
Company its rights to receive a management fee for services performed for the
Bettendorf Joint Venture and to assign its obligation to pay part of that fee to
its joint venture partner.
Employees
As of December 31, 1997, the Company had approximately 3,100 employees:
approximately 1,100 employees at Lady Luck Rhythm & Blues, Country Casino and
the Pavilion, approximately 470 employees at Lady Luck Natchez, approximately
820 employees at Lady Luck Bettendorf, approximately 590 employees at Lady Luck
Biloxi, approximately 90 employees at Lady Luck Central City, and anticipates
employing up to 300 to 800 employees at each of the other Development Stage
Projects. The Company's employees are currently non-union. The Company has not
experienced any work stoppages and believes its relations with its employees are
good.
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Competition
The Company believes the gaming markets in which it currently operates or
intends to develop projects are extremely competitive and expects them to become
even more competitive. The Company competes in these gaming markets by
attempting to develop locations within such markets which are more accessible to
potential customers and through its sales and marketing efforts described above.
There is a substantial risk that the supply of gaming facilities in
Mississippi will exceed the demand for gaming, which could have a material
adverse effect on the Company's operating results. As of December 31, 1997,
there were a total of 30 licensed and operating dockside gaming facilities in
Mississippi, consisting of nine in Tunica, nine in Biloxi (one opened in
December 1997), two in Gulfport, four in Vicksburg, one in Hancock County, one
in Coahoma County, one in Natchez and three in Greenville. One additional
dockside casino is licensed and under construction in Biloxi. Increased
competition including the opening of another competing casino in December 1997
in Biloxi, caused LLB's revenues to decline significantly and its operations to
become unprofitable since that time. In addition, DeSoto County, the
northwestern-most Mississippi County and nearest to Memphis, could, under
existing state law, vote to authorize gaming activities. The voters of DeSoto
County have voted against legalized gaming on three occasions, most recently in
November, 1996. However, local referenda can be held during presidential
election years, and no assurance can be given that gaming will not be approved
in DeSoto County in future elections. Additionally, in Arkansas, a gaming
referendum, which, if passed, would have legalized certain forms of gaming at
certain locations, was defeated in November of 1996. If gaming were legalized in
certain areas of Arkansas or, to a lesser extent, in DeSoto County, it could
have a material adverse effect on the Company's Coahoma County facilities.
Furthermore, the Choctaw Indian Tribe negotiated a compact with the State of
Mississippi and has opened a land-based casino located within approximately 100
miles to the east of Jackson, Mississippi which has affected Lady Luck Natchez
and, if developed, could affect the Vicksburg Project.
Lady Luck Bettendorf faces competition from two other riverboats in the
Quad Cities area, including riverboats in Davenport, Iowa and Rock Island,
Illinois. However, Lady Luck Bettendorf has increased its share of the Quad
Cities, Iowa market from approximately 44% during 1996 to 46% during 1997. In an
effort to further solidify its position, the Company is currently expanding Lady
Luck Bettendorf.
One of the reasons that the Company sold the assets of LLCC was because the
operations of Lady Luck Central City were negatively impacted during the last
year from increased competition from certain nearby casinos.
The Company expects that the Missouri Project, if opened, will face
competition from dockside and riverboat gaming in Missouri, including St. Louis,
as well as existing and future riverboat and dockside unlimited stakes gaming in
Illinois.
The Company also competes with gaming facilities nationwide and in Canada,
including land-based casinos in Nevada, New Jersey, South Dakota and Ontario,
riverboat or dockside gaming in Missouri as well as various gaming operations on
Native American land in such states as New York, California, Connecticut, Iowa,
Michigan, Minnesota, Arizona, Washington, Wisconsin, Louisiana and Mississippi.
Other jurisdictions may legalize various forms of gaming that may compete with
the Company in the future. Although the Company expects that the presence of
gaming in a city will result in an increase in the number of people visiting
such city, there can be no assurance that such an increase will occur. The
failure of such cities to realize such an increase, or a subsequent decrease in
the number of visitors to an area where the Company is engaged in gaming, could
have a material adverse effect on the Company's operations.
In any jurisdiction where the Company may commence operations, it will face
competition for desirable sites or qualified personnel. The Company will also
compete with other forms of wagering, including bingo and pull tab games, card
clubs, pari-mutuel betting on horse racing and dog racing, state-sponsored
lotteries, video lottery terminals and video poker terminals, as well as other
forms of entertainment.
Certain of the Company's competitors have more gaming industry experience,
larger operations or significantly greater financial and other resources than
the Company. Given these factors, it is possible that substantial competition
could have a material adverse effect on the Company's future results of
operations.
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Seasonality and Weather
Even if the Company is able to expand into other jurisdictions, it may
remain dependent on a relatively small number of dockside facilities. 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. Flooding on the Mississippi
river and adverse weather conditions caused Lady Luck Natchez to close on two
occasions in 1997 for a total of approximately 18 days which closings also
caused lingering disruptive effects for a period after each reopening.
Additionally, due to its location on the Gulf of Mexico, Lady Luck Biloxi is
especially vulnerable to damage from hurricanes. The inability to use a dockside
facility during any period could have a material adverse effect on the Company's
financial results.
Seasonal revenue fluctuations may occur at the casinos in Mississippi and
Iowa.
Regulatory Matters
LLGC, through its subsidiaries and affiliates, owns and operates gaming
casinos in Mississippi and Iowa and intends to develop projects in Missouri and
Vancouver, British Columbia. The entities owning such casinos and any entities
owning casinos in the future are or will be required to obtain and maintain
certain gaming licenses from the applicable state regulatory authorities and
comply with certain regulations with respect thereto. Although the Company
believes it is in material compliance with all applicable gaming regulations,
non-compliance by the Company could have a material adverse effect on the
Company' operations. Generally, regulatory authorities have broad discretion in
granting, renewing and revoking gaming licenses. LLGC itself is required to be
found suitable to own the entities directly or indirectly owning such casinos.
In addition, the Company's directors and many of the employees of such casinos
are required to obtain gaming licenses. Where it has not already done so, the
Company intends to apply for such licenses and to have its employees, to the
extent required, apply for such licenses. All directors and executive officers
of the Company have received all necessary approvals with respect to the
Operating Casinos and have received, applied for or will apply for all necessary
approvals with respect to the Development Stage Projects and the Pre-development
Stage Project. While the Company has received certain gaming licenses in the
states of Mississippi, Colorado and Iowa, the Company has not received licenses
in any other jurisdiction. There can be no assurances that each casino, officer,
director, or the appropriate gaming employees will receive (where such has not
yet been received) or maintain the necessary gaming licenses, or that the
Company or its casinos will be able to operate successfully or profitably under
the terms of any such licenses. The failure of the Company or any of its key
personnel to obtain or retain a license in a particular jurisdiction could have
a material adverse effect on the Company's ability to obtain or retain licenses
in other jurisdictions.
Any jurisdiction in which the Company may seek to conduct gaming operations
in the future would likely require the Company to apply for and obtain
regulatory approvals with respect to the construction, design and operational
features of whatever gaming facilities it intends to utilize. There can be no
assurance that the Company will obtain the necessary approvals on a timely basis
or with acceptable conditions to allow the Company to open any of the
Development Stage Projects or the Pre-development Stage Project. In addition,
the State of Mississippi currently requires, and other jurisdictions may
require, prior approval for all entities that are conducting gaming within their
respective jurisdictions before conducting gaming in other jurisdictions. The
obtaining of such licenses and approvals may be time consuming and expensive and
cannot be assured. Any regulations adopted by the gaming commissions, the
legislatures or any governmental authority having jurisdiction in Mississippi,
Missouri, Iowa, or other jurisdictions in which the Company has or intends to
have gaming operations may have a material adverse effect on the Company's
results of operations or financial condition, including its ability to raise
financing.
Mississippi Gaming Regulations
The ownership and operation of a gaming business in Mississippi is subject
to extensive laws and regulations, including the Mississippi Gaming Control Act
passed in June 1990 (the "Mississippi Act") and the regulations (the
"Mississippi Regulations") promulgated thereunder by the Mississippi Gaming
Commission and Mississippi Tax Commission which are empowered to oversee and
enforce the Mississippi Act. Gaming in Mississippi can be legally conducted only
on vessels of a certain minimum size in navigable waters in counties bordering
the Mississippi River or in waters of the State of Mississippi (so-called
dockside gaming) which lie adjacent and to the south (principally in the Gulf of
Mexico) of the Counties of Hancock, Harrison, and Jackson, and only in counties
in Mississippi in which the registered voters have not voted to prohibit such
activities. The voters in Jackson County, the southeastern-most county of
Mississippi,
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and DeSoto County, south of Memphis, Tennessee, have voted to prohibit gaming in
such counties. Gaming may also be legally conducted on Native-American lands in
Mississippi as regulated in part by the Federal Indian Gaming Regulatory Act of
1988, which activity is not subject to the Mississippi Act. Presently, the
Mississippi Band of Choctaws operates a land based casino at a location in
East-Central Mississippi.
The Mississippi Act requires that a person (including any corporation or
other entity) must be licensed to conduct gaming activities in Mississippi. A
license will be issued only for a specified location which has been approved as
a gaming site by the Mississippi Gaming Commission prior to issuing a license.
The Mississippi Act also requires that each officer or director of a gaming
licensee, or other person who is actively and directly engaged in the
administration or supervision of gaming, or who has any other significant
involvement with the activities of any gaming subsidiary, or who exercises a
material degree of control over the licensee, either directly or indirectly,
must be found suitable by the Mississippi Gaming Commission. In addition, any
employee of the licensee which is directly involved in gaming must obtain a work
permit from the Mississippi Gaming Commission. The Mississippi Gaming Commission
will not issue a license or make a finding of suitability unless they are
satisfied, after an extensive investigation paid for by the applicant, that the
persons associated with the gaming licensee or applicant for a license have
proven that they are of good character, honesty and integrity, with no relevant
or material criminal record. In addition, the Mississippi Gaming Commission will
not issue a license unless they are satisfied that the licensee is adequately
financed or has a reasonable plan to finance its proposed operations from
acceptable sources, and that persons associated with the applicant have
sufficient business probity, competence and experience to engage in the proposed
gaming enterprise. The Mississippi Gaming Commission may refuse to issue a work
permit to a gaming employee (i) if the employee has committed larceny,
embezzlement or any crime of moral turpitude, or knowingly violated the
Mississippi Act or Mississippi Regulations, or (ii) for any other reasonable
cause.
The Mississippi Gaming Commission has the power to deny, limit, condition,
revoke and suspend any license, finding of suitability or registration, or fine
any person, as they deem reasonable and in the public interest, subject to an
opportunity for a hearing. The Mississippi Gaming Commission may fine any
licensee or person who was found suitable up to $100,000 for each violation of
the Mississippi Act or the Mississippi Regulations, which is the subject of an
initial complaint, and up to $250,000 for each such violation which is the
subject of any subsequent complaint. The Mississippi Act provides for judicial
review of certain decisions of the Mississippi Gaming Commission by petition to
a Mississippi Circuit Court, but the filing of such petition does not
necessarily stay any such action taken by the Mississippi Gaming Commission
pending a decision by the Circuit Court.
License fees and taxes, computed in various ways depending on the type of
gaming involved, are payable to the State of Mississippi and to the counties and
cities in which the gaming subsidiaries' respective operations are conducted.
Depending on the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly or annually and are based upon a percentage of
the gross gaming revenues received by a casino operation, the number of slot
machines operated by such casino, or the number of table games operated by such
casino. Each gaming licensee must pay a license fee to the State of Mississippi
based upon "gaming receipts" (generally defined as gross receipts less payouts
to customers as winnings). In Coahoma and Harrison Counties, for instance, the
local governments have imposed gross revenue fees of 3.2% as well as annual fees
on slot machines. As of June 1, 1995, the City of Natchez was authorized to
impose an equivalent tax on casino gross revenue. The license fee equals 4% of
gaming receipts of $50,000 or less per month, 6% of gaming receipts over $50,000
and up to $134,000 per month, and 8% of gaming receipts over $134,000 per month.
The foregoing license fees are allowed as a credit against the Company's
Mississippi state income tax liability for the year paid. The Company may also
be subject to a local municipal or county tax equal to one-tenth of the license
fee due to the State of Mississippi as set forth above. An additional license
fee, based upon the number of table games conducted or planned to be conducted
on the gaming premises, is payable to the State of Mississippi annually in
advance. Based upon the Company's planned activities, this additional licensee
fee will equal approximately $399,200 (aggregate for all the Dockside Casinos),
plus $100 for each game in excess of 35 games at any one location. Municipal and
county fees have been and may in the future also be assessed, and may vary from
jurisdiction to jurisdiction. All taxes must be timely paid in order to retain
the gaming license.
The Company is also subject to certain audit and record keeping laws and
regulations, primarily intended to ensure compliance with the Mississippi Act,
including compliance with the provisions relating to the payment of license
fees. The Mississippi Gaming Commission, through the power to regulate licenses,
has the power to impose additional restrictions on the holders of the securities
of the Company, at any time. The Company is required to provide the Mississippi
Gaming Commission with notice of any changes in directors or officers. The
Mississippi Gaming Commission requires that any CEO, president, CFO or secretary
of the Company or its subsidiaries be found suitable. In addition, the
Mississippi Gaming
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Commission requires that any other director or officer of the Company who has a
substantial involvement with gaming or a significant administrative supervisory
role of the gaming operations be found suitable. These suitability findings may
be made after such individuals take office as directors or officers. However,
the Mississippi Gaming Commission may require that the Company sever relations
with individuals if they are not found suitable. In addition, during the
pendency of any suitability finding, the Mississippi Gaming Commission may
require that such individuals not act as directors or officers. Messrs.
Tompkins, Uboldi, Reid and Tombari have been found suitable by the Mississippi
Gaming Commission.
Because the Company is licensed to conduct gaming in Mississippi, neither
the Company nor any affiliates may engage in gaming activities outside of
Mississippi without the prior approval of the Mississippi Gaming Commission. The
Mississippi Gaming Commission has adopted regulations related to foreign gaming
approval and the impact of any such regulations on the future operations of the
Company cannot be determined at this time. The Mississippi Gaming Commission has
confirmed that this requirement will not apply retroactively. However, the
Mississippi Gaming Commission will need to approve the Company's future gaming
operations outside of Mississippi. The Company's operations in Iowa have been
approved by the Mississippi Gaming Commission.
The Mississippi Regulations also require prior approval for a "plan of
recapitalization" as defined by such regulations. In addition, the Company must
submit detailed financial, operating and other reports to the Mississippi Gaming
Commission. Substantially all loans, leases, securities and similar financing
transactions entered into by the Company must be reported to or approved by the
Mississippi Gaming Commission. The Company is required periodically to submit
detailed financial and operating reports to the Mississippi Gaming Commission
and to furnish any other information which the Mississippi Gaming Commission may
require. The Mississippi Act requires annual audits by independent certified
public accountants of the financial statements of casino licensees with gross
revenue of $3 million or more.
Any permanently moored vessel used for casino operations must meet the fire
safety standard of the Mississippi Fire Prevention Code and the Life Safety Code
and the Standards for the Construction and Fire Protection of Marine Terminals,
Piers and Wharfs of the National Fire Protection Association. Additionally, any
establishment to be constructed for dockside gaming must meet the Southern
Standard Building Code or the local building code, if such a local building code
has been implemented at the casino's site. All permanently moored vessels must
comply with certain standards for stability, flooding and stability after
damage. The regulations require approvals by the American Bureau of Shipping,
which is under contract with the Mississippi Gaming Commission to perform such
stability tests.
Iowa Gaming Regulations
In 1989, the State of Iowa legalized riverboat gaming on the Mississippi
River and certain other waterways located in Iowa. The legislation authorized
the granting of licenses to not-for-profit corporations which, in turn, are
permitted to enter into operating agreements with qualified persons who also
actually conduct riverboat gaming operations. Such operators must likewise be
approved and licensed by the Iowa Racing and Gaming Commission (the "Iowa Gaming
Commission").
In 1994, Iowa amended the enabling legislation removing several previous
restrictions including loss and wager limits and restrictions on the amount of
space on a vessel that may be utilized for gaming. Current law permits gaming
licensees to offer unlimited stakes gaming on games approved by the Iowa Gaming
Commission on a 24-hour basis. Dockside casino gaming is authorized by the Iowa
Gaming Commission although the licensed vessel is required to conduct at least
one 2-hour excursion cruise each day for at least 100 days during the excursion
season. The legal age for gaming is 21.
On August 11, 1994, the Riverbend Regional Authority, a not-for-profit
corporation organized for the purpose of facilitating riverboat gaming in
Bettendorf, Iowa (the "Authority"), entered into an agreement (the "Operator's
Contract") with the Bettendorf Joint Venture authorizing the Bettendorf Joint
Venture to operate riverboat gaming operations in Bettendorf. The initial term
of the Operator's Contract is for three years. The Bettendorf Joint Venture has
the right to renew the contract for succeeding three year periods as long as
Scott County voters approve gaming in the jurisdiction. The Company's intent is
to renew the Operator's Contract effective April 1998. The enabling legislation
gives each county the opportunity to hold a referendum on whether to allow
casino gaming within its boundaries. Such a referendum was passed on April 7,
1994 with 80% voting in favor of passage and casino gaming was thereby
authorized in Bettendorf for a period of nine years from the issuance date of
the license. Another referendum cannot be held until 2002 and if approved,
subsequent referenda will occur at 8 year intervals. Under the Operator's
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Contract, the Bettendorf Joint Venture pays the Authority $1 per passenger for
the first 500,000 passengers in any year and $1.50 for each passenger in excess
of 500,000. The per passenger admission charge is increased by 1/2 of the
Consumer Price Index for each three year extension period of the Operator's
Contract. The Bettendorf Joint Venture also pays the Authority an amount equal
to 2% of the net gaming win in excess of $35,000,000 and less than $44,000,000
in any year.
Further, pursuant to statute, the Bettendorf Joint Venture must pay a fee
to the City equal to $.50 per passenger. On March 5, 1998, the Iowa Gaming
Commission authorized the renewal of the Bettendorf Joint Venture's gaming
license. The license is for an additional term of one year commencing April 1,
1998, is not transferrable and will need to be renewed in March of 1999 and at
the end of each renewal period thereafter.
The ownership and operation of gaming facilities in Iowa are subject to
extensive state laws, regulations of the Iowa Gaming Commission and various
county and municipal ordinances (collectively, the "Iowa Gaming Laws"),
concerning, among other things, the responsibility, financial stability and
character of gaming operators and persons financially interested or involved in
gaming operations. Iowa Gaming Laws seek to (i) prevent unsavory or unsuitable
persons from having direct or indirect involvement with gaming at any time or in
any capacity; (ii) establish and maintain responsible accounting practices and
procedures; (iii) maintain effective control over the financial practices of
licensees (including the establishment of minimum procedures for internal fiscal
affairs, the safeguarding of assets and revenues, the provision of reliable
record keeping and the filing of periodic reports with the Iowa Gaming
Commission); (iv) prevent cheating and fraudulent practices; and (v) provide a
source of state and local revenues through taxation and licensing fees. Changes
in such laws, regulations and procedures could have a material adverse effect on
the Bettendorf Joint Venture's gaming operations.
Gaming licenses granted to individuals must be renewed every year, and
licensing authorities have broad discretion with regard to such renewals.
Licenses are not transferable. The Bettendorf Joint Venture must submit detailed
financial and operating reports to the Iowa Gaming Commission. Any contract in
excess of $50,000 must be submitted to and approved by the Iowa Gaming
Commission.
Officers, directors, managers and certain key employees of the Bettendorf
Joint Venture are required to be licensed by the Iowa Gaming Commission.
Employees associated with gaming must obtain work permits which are subject to
immediate suspension under certain circumstances. In addition, anyone having a
material relationship or involvement with the Bettendorf Joint Venture may be
required to be found suitable or to be licensed, in which case those persons
would be required to pay the costs and fees of the Iowa Gaming Commission in
connection with the investigation. An application for a license may be denied
for any cause deemed reasonable by the Iowa Gaming Commission. In addition to
its authority to deny an application for license, the Iowa Gaming Commission has
jurisdiction to disapprove a change in position by such officers or key
employees and the power to require the Bettendorf Joint Venture to suspend or
dismiss officers, directors or other key employees or sever relationships with
other persons who refuse to file appropriate applications or whom the Iowa
Gaming Commission finds unsuitable to act in such capacities.
The Iowa Gaming Commission may revoke a gaming license if, among other
conditions, the licensee: (i) has been suspended from operating a gaming
operation in another jurisdiction by a board or commission of that jurisdiction;
(ii) has failed to demonstrate financial responsibility sufficient to meet
adequately the requirements of the gaming enterprise; (iii) is not the true
owner of the enterprise; (iv) has failed to disclose ownership of other persons
in the enterprise; (v) is a corporation 10% of the stock of which is subject to
a contract or option to purchase at any time during the period for which the
license was issued, unless the contract or option was disclosed to the Iowa
Gaming Commission and the Iowa Gaming Commission approved the sale or transfer
during the period of the license; (vi) knowingly makes a false statement of a
material fact to the Iowa Gaming Commission; (vii) fails to meet a monetary
obligation in connection with an excursion gaming boat; (viii) pleads guilty to,
or is convicted of a felony; (ix) loans to any person, money or other thing of
value for the purpose of permitting that person to wager on any game of chance;
(x) is delinquent in the payment of property taxes or other taxes or fees or a
payment of any other contractual obligation or debt due or owed to a city or
county; or (xi) assigns, grants or turns over to another person the operation of
a licensed excursion boat (this provision does not prohibit assignment of a
management contract approved by the Iowa Gaming Commission) or permits another
person to have a share of the money received for admission to the excursion
boat.
If it were determined that gaming laws were violated by a licensee, the
gaming licenses held by such licensee could be limited, made conditional,
suspended or revoked. In addition, the Bettendorf Joint Venture and the persons
involved could be subject to substantial fines for each separate violation of
the Iowa Gaming Laws at the discretion of the Iowa
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Gaming Commission. Limitations, conditioning or suspension of any gaming license
could (and revocation of any gaming license would) have a material adverse
effect on the operations of the Bettendorf Joint Venture.
The Iowa Gaming Commission may also require any individual who has a
material relationship with the Bettendorf Joint Venture to be investigated and
licensed or found suitable. Any person who acquires 5% or more of the Bettendorf
Joint Venture's equity securities must be approved by the Iowa Gaming Commission
prior to such acquisition. The applicant stockholder is required to pay all
costs of such investigation.
Gaming taxes approximating 20% of the adjusted gross receipts will be
payable by the Bettendorf Joint Venture on its operations to the State of Iowa.
In addition, there are costs which include a $50,000 initial application fee,
yearly operations fees and all costs associated with monitoring and enforcement
by the Iowa Gaming Commission and the Iowa Department of Criminal Investigation.
If required by any gaming authority or if the Company reasonably determines
that ownership of any of the Company's securities, including the 2001 Notes, by
any person or entity will either materially preclude, interfere with, threaten
or delay the issuance of, or jeopardize the maintenance and existence of any
gaming or liquor license, or result in the imposition of significantly
burdensome terms or conditions on such license, the Indenture covering the 2001
Notes provides that the Company will have certain rights to redeem them or
require their sale.
Missouri Gaming Regulations
Gaming was originally authorized in the state of Missouri on November 3,
1992, although no governmental action was taken to enforce or implement the
original law. On April 29, 1993, Missouri enacted the Missouri Gaming Law,
replacing the original law. Substantial amendments to the Missouri Gaming Law
were passed effective May 20, 1994. The Missouri Gaming Law established the
Missouri Gaming Commission, which is responsible for the licensing and
regulation of riverboat gaming in Missouri.
The ownership and operation of riverboat gaming facilities in Missouri are
subject to extensive ongoing state and local regulation to which the Company and
certain of its officers and employees will be subject, including licensure. The
Company and certain of its officers and employees will be required to undergo
extensive application procedures in order to obtain the requisite licenses and
permits to operate. Such licenses are to be issued through application with the
Missouri Gaming Commission, which will require, among other things,
(a) investigations into applicants' character, financial responsibility and
experience qualifications and (b) that applicants furnish (i) an affirmative
action plan for the hiring and training of minorities and women; and (ii) an
economic development or impact report. The Company's license fees will be at
least $50,000 for the application, with an annual fee of at least $25,000
thereafter. The Company's licenses will last for a term of two years except that
the first license and subsequent renewal granted to each gaming operator are to
be for terms of one year. There can be no assurance that the Company's
application for a license to operate a riverboat in Missouri or such other
requisite applications will be approved in a timely manner or at all. In
addition, every individual participating in gaming operations in any capacity
must obtain an occupational license. There are two levels of such licenses. The
first is level one and includes the audit manager, casino manager, chief of
security, controller, electronic data processing manager, slot department
manager, surveillance manager, assistant manager, "key person" and any other
person or entity the Missouri Gaming Commission directs to file a level one
application. A "key person" includes, but is not limited to, an officer,
director or holder of any direct or indirect legal or beneficial interest whose
combined direct, indirect or attributed interest is 5% or more in a business
entity or anyone so designated by the Missouri Gaming Commission. A level two
license would include all other employees. The application fee for a level one
license is $1,000 and for a level two license is $75. The licenses must be
renewed annually and the renewal fee is $50 for either license. The Missouri
Gaming Commission may revoke or suspend gaming licenses and impose other
penalties for violation of the Missouri Gaming Law and the rules and regulations
which may be promulgated thereunder. Penalties may include forfeiture of all
gaming equipment used for improper gaming and fines of up to three times an
operator's highest daily gross adjusted receipts during the preceding twelve
months. Also, the Missouri Regulations provide that any transfer of a 5% or more
direct or indirect ownership interest in a publicly traded gaming licensee can
be disapproved by the Missouri Gaming Commission.
The Missouri Gaming Law imposes operational requirements on riverboat
operators, including a charge of $2 per gaming customer that licensees must pay
to the Missouri Gaming Commission, a minimum payout requirement of 80% for
gambling devices, a 20% tax on adjusted gross receipts, prohibitions against
lending to gaming customers (except for the use of credit cards and cashing
checks) and a requirement that each licensee reimburse the Missouri Gaming
Commission
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for all costs of any Missouri Gaming Commission staff necessary to protect the
public on the licensee's boat. Licensees must also submit audited quarterly
financial reports to the Missouri Gaming Commission and pay the associated
auditing fees. The Missouri Gaming Law provides for a loss limit of $500 per
person per excursion. Although the Missouri Gaming Law currently provides no
limit on the amount of riverboat space that may be used for gaming, the Missouri
Gaming Commission is empowered to impose such space limitations through the
adoption of rules and regulations. Additionally, United States Coast Guard
safety regulations could affect the amount of riverboat space that may be
devoted to gaming. The Missouri Gaming Commission will ultimately determine the
location, number and type of excursion boats in any city or county which has
approved riverboat gambling, such city or county approval being a prerequisite
to riverboat gambling in such city or county. Any city or county which has
recommended riverboat gambling is to submit a plan outlining, inter alia, the
number of boats to be licensed, the recommended licensee(s), and the community's
economic development or impact and affirmative action plan. By regulation, the
plan is to be submitted within 30 days after the filing of an application for a
license in that city or county. With respect to the availability of dockside
gaming, the Missouri Gaming Commission is empowered to determine on a city and
county-specific basis where such gaming is appropriate and shall be permitted.
All other boats must cruise unless authorized by the Missouri Gaming Commission
for continuous dockside gaming. The Missouri Gaming Law also includes
requirements as to the form of riverboats, which must resemble Missouri's or the
local city's or county's riverboat history to the extent practicable and include
certain non-gaming amenities. An excursion gambling boat is now defined as a
boat, ferry or other floating facility. The Missouri Gaming Law also imposes
annual licensing requirements on suppliers of gaming equipment or other
suppliers to riverboat operators.
There can be no assurance that gaming will continue to be permitted in
Missouri. The Missouri Gaming Law could be repealed or modified by Missouri's
legislative process or by its judiciary.
Non-Gaming Regulations
The Company is subject to certain federal, state and local environmental
protection, health and safety laws, regulations and ordinances that apply to
businesses generally, such as the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, CERCLA, the Occupational Safety and
Health Act, and similar state statutes.
The Vicksburg Site has been used as a bulk petroleum storage facility since
the early 1950's, and contained above ground storage tanks and barge and truck
loading docks associated with that operation. Known releases of petroleum
products from three of the seven tanks have occurred since 1986, along with
other small releases at various locations on site. The Subsurface Assessment of
the environmental condition of the site by an outside environmental consultant
indicated that certain of the soils at the site were contaminated with petroleum
hydrocarbons and associated volatile organic compounds, and that such
contamination was present in significant concentrations in some locations on
site.
Remediation efforts at the Vicksburg Site are complete. Under the terms of
the acquisition of the Vicksburg Site, the purchase price for the Vicksburg Site
of $4.5 million was placed in an escrow account, with all costs incurred to
remediate environmental conditions on site paid out of such escrow account (with
any funds remaining after remediation going to the seller of the Vicksburg
Site). On February 21, 1996, the Mississippi Department of Environmental Quality
determined that the environmental remediation conducted by the seller meets all
federal and state standards, and has certified that no further action is
required. The entire remediation cost was paid out of the escrow fund, and the
Company did not incur any of these costs. However, no assurance can be provided
that the Mississippi Department of Environmental Quality or the Federal
Environmental Protection Agency will not alter target cleanup levels in the
future, resulting in additional cleanup requirements. This would expose the
Company to additional liability as the owner of the property, and could result
in a material delay of the construction of new facilities on-site.
Although the Company knows of no other 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.
14
<PAGE>
ITEM 2. PROPERTIES.
The Company has various property leases and options to lease property and
owns barges upon which dockside casinos have been or are anticipated to be
constructed. The Company (i) owns two parcels of property at the site where Lady
Luck Biloxi is located and leases several other properties at such site; (ii)
owns certain property including the Vicksburg Site; (iii) leases various land in
Natchez and owns the property where the River Park Hotel is located; (iv) has
entered into the Coahoma County lease and purchased the leasehold associated
with the property where the Riverbluff Hotel is located; (v) has entered into
various leases in Gulfport; (vi) has entered into an option to lease the
Kimmswick Site. All rental payments under these leases, other than rental
payments under the Coahoma County leases, are calculated on a fixed base rent
adjusted in accordance with increases in the Consumer Price Index up to a
maximum of 3% in any given year. Rental payments under the Coahoma County leases
are 5.5% of the annual Gross Revenues (as defined in such leases). The Company
owns nine barges, one of which is in Natchez, one of which is in Biloxi, three
of which are intended for use in the construction of the Vicksburg Project and
four of which are in Coahoma County. The Company also owns a cruising gaming
vessel which is being leased to the Bettendorf Joint Venture and has
approximately $6.0 million invested in a partially finished cruising vessel. The
Company leases and has an obligation to acquire property in Central City,
Colorado (subsequent to December 31, 1997 the Company acquired a portion of this
leased property). Certain of the Company's properties are encumbered by
mortgages and other security agreements for the benefit of holders of the 2001
Notes. Additionally, the Company has granted liens on certain of its owned and
leased properties to the sellers or lessors of such properties, including a plot
of land adjacent to Lady Luck Biloxi, the property where the River Park Hotel is
located and purchased the leasehold interest where the Riverbluff Hotel is
located. The Company leases its corporate offices in Las Vegas, Nevada. Refer to
Item 1. Business for additional information related to the Company's properties.
ITEM 3. LEGAL PROCEEDINGS.
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, 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 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 $7.3 million as of March 6, 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
15
<PAGE>
87.1 million drachma (which was approximately $301,000 as of March 6, 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; 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 $47,000,000, of
which approximately $3,400,000 was alleged for additional construction work on
Lady Luck Natchez and the remaining amount was alleged for unjust enrichment,
for causing the bankruptcy of Superior and for future work Superior expected to
perform for the Company. Superior has appealed the decision to dismiss the
action. The Company, based in part on the advice of its counsel, believes that
it has meritorious defenses and does not believe that the appeal of the decision
will have a material adverse effect on the Company's financial condition or
results of operations.
During November 1996, LLCC entered into a Memorandum of Understanding (the
"Memorandum") with BWCC, Inc., which does business as Bullwhackers-Central City
("Bullwhackers"). The Memorandum provided for a combination of the respective
companies' gaming establishments which currently operate on adjacent real
property in Central City. As a result of the Memorandum, the parties negotiated
and purportedly executed a definitive Operating Agreement and Lease Agreement in
September 1997. During the fourth quarter of 1997, Bullwhackers refused to honor
such definitive agreements and the Company has commenced suit against
Bullwhackers accordingly.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted to a vote of security-holders of LLGC during the
fourth quarter of 1997.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
LLGC's common stock (symbol "LUCK") trades on the Nasdaq National Market
tier of the Nasdaq Stock Market and is quoted in the Wall Street Journal and
other newspapers. The following table sets forth the high and low sale prices of
the Common Stock for each quarter during the preceding two years, as reported by
Nasdaq.
<TABLE>
<CAPTION>
Nasdaq Daily Sales Price
High Low
- --------------------------------------------------------------------------------------- --------------------- --------------------
<S> <C> <C>
1997
1st quarter 2.125 1.688
2nd quarter 1.875 1.500
3rd quarter 2.125 1.188
4th quarter 1.625 0.750
1996
1st quarter 2.219 1.625
2nd quarter 4.625 2.000
3rd quarter 4.313 2.438
4th quarter 3.000 1.750
</TABLE>
As of March 10, 1998, LLGC had approximately 555 holders of record of its
common stock.
LLGC did not pay any cash dividends on its common stock in 1996 or 1997 and
has no intention of paying cash dividends on its common stock in the foreseeable
future. In addition, the Indenture covering the 2001 Notes provides restrictions
on the Company's ability to pay dividends on its common stock (See Note 5 to the
Company's Consolidated Financial Statements).
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995 1994 1993
- --------------------------------------------------------------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Gross revenues $ 170,474 $ 174,234 $ 158,411 $ 125,134 $ 81,124
Promotional allowances (13,183) (12,527) (8,821) (7,979) (4,313)
Net revenues 157,291 161,707 149,590 117,155 76,811
Casino expenses 57,301 56,806 49,703 41,859 21,492
Food and beverage costs and expenses 6,644 6,928 8,582 7,215 2,982
Hotel expenses 2,236 1,925 1,667 652 -
Other operating expenses 258 282 310 574 194
Selling, general and administrative 52,939 53,786 49,539 51,926 21,722
Related party management/license fees 1,384 2,317 5,520 2,471 2,894
Depreciation and amortization 12,886 11,289 9,694 7,067 2,478
Reserve for loss on sale of assets 7,621 - - - -
Pre-opening expense - 247 - 2,970 6,769
Litigation claims 700 1,100 - - -
Project development cost write-downs and reserves 7,784 404 509 15,635 -
Asset impairment write-down 20,698 - - - -
Loss on sale of investment in unconsolidated affiliate 1,912 - - - -
Abandonment loss - - - 9,344 -
Operating income (loss) (15,072) 26,623 24,066 (22,558) 18,280
Other (expense) (21,390) (20,415) (19,204) (15,393) (2,729)
Income (loss) before income tax and extraordinary items (36,462) 6,208 4,862 (37,951) 15,551
Net income (loss) (36,511) 6,139 6,718 (35,665) 3,810
Net cash provided by (used in) operating activities 10,114 13,492 17,083 8,590 22,935
- --------------------------------------------------------------- ------------ ------------ ------------ ----------- ----------
At December 31, 1997 1996 1995 1994 1993
- --------------------------------------------------------------- ----------- ------------ ------------ ----------- ----------
Cash and cash equivalents $ 19,552 $ 15,490 $ 22,148 $ 28,914 $ 18,351
Restricted cash 15,388 - 8,858 7,847 -
Current assets 41,930 19,523 35,219 44,679 22,327
Property and equipment, net 128,375 173,119 155,664 170,345 91,116
Total assets 185,306 223,718 217,281 226,963 122,975
Current liabilities 22,258 19,892 23,702 216,954 42,200
Total liabilities 199,072 200,973 200,675 221,137 85,369
Series A mandatory cumulative redeemable preferred stock 18,402 16,430 14,669 13,097 11,693
Stockholders' equity (deficit) (32,168) 6,315 1,937 (7,271) 25,913
Working capital (deficit) 19,672 (369) 11,517 (172,275) (19,873)
- --------------------------------------------------------------- ----------- ------------ ------------ ----------- ----------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------- ----------- ------------ ----------- ----------- -----------
Years ended December 31, 1997 1996 1995 1994 1993
----------- ------------ ----------- ----------- -----------
Thousands, except per share amounts and employees
<S> <C> <C> <C> <C> <C>
Selected Data
Basic and diluted net income (loss) per share
Before extraordinary item $ (1.25) $ 0.21 $ 0.15 $ (1.45) $ 0.43
Extraordinary item - - 0.08 0.04 (0.28)
Applicable to common stockholders (1.31) 0.15 0.18 (1.47) 0.12
Pro Forma earnings per share (unaudited) - - - - 0.11
Shares used in computing net income per share 29,285 29,285 28,952 25,300 24,664
Shares outstanding at year end 29,285 29,285 29,285 27,285 24,793
Cash dividends declared per common share - - - - -
Common Stock - High $ 2.13 $ 4.63 $ 2.81 $ 13.75 $ 19.00
Common Stock - Low $ 0.75 $ 1.63 $ 1.50 $ 2.25 $ 7.25
Common Stock - Year end $ 1.00 $ 1.88 $ 1.63 $ 2.59 $ 10.75
Number of employees 3,100 2,950 2,850 2,100 2,330
- --------------------------------------------------------------- ----------- ------------ ----------- ------------ -----------
</TABLE>
Reference is made to Part I, Item 3 - Legal Proceedings, which contains
information regarding uncertainties which may have a material adverse effect on
the Company's future financial condition and results of operations.
19
<PAGE>
ITEM 7. 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 First Mortgage Notes due 2001 (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.
The operations of Lady Luck Gaming Corporation ("LLGC"), a Delaware
corporation, and its subsidiaries (collectively the "Company") primarily include
those of LLGC, Lady Luck Gaming Finance Corporation ("LLGFC"), a Delaware
corporation; Lady Luck Mississippi, Inc. ("LLM"), Lady Luck Biloxi, Inc.
("LLB"), Lady Luck Gulfport, Inc. ("LLG"), Lady Luck Vicksburg, Inc. ("LLV")
Magnolia Lady, Inc. ("MLI"), Old River Development, Inc. ("ORD") and Lady Luck
Tunica (LLT), each a Mississippi corporation (collectively the "Mississippi
Companies"); Lady Luck Central City, Inc., formerly Gold Coin Incorporated
("LLCC"), a Delaware corporation; Lady Luck Kimmswick, Inc. ("LLK"), a 93% owned
Missouri corporation; Lady Luck Quad Cities, Inc. ("LLQC"), a Delaware
corporation; and, L.L. Gaming Reservations, Inc. ("LLGR") a Nevada corporation.
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 with Bally's Entertainment Corp. ("Bally's").
Results of Operations
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
For the years ended December 31, 1997 and 1996, gross revenues decreased
from $174.2 million to $170.5 million, a decrease of $3.7 million or 2%. The
decrease was primarily due to the Lady Luck Rhythm & Blues/Country Casino
Complex's revenues and operating results being materially adversely affected,
during the third quarter of 1997, by a temporary closure by the Arkansas
Department of Transportation of the Helena Bridge which provides the principle
access from its primary customer market. Other causes of the decrease include:
(i) two closures of Lady Luck Natchez for a total of approximately 18 days due
to flooding on the Mississippi river and adverse weather conditions which
closings also caused lingering disruptive effects for a period after each
reopening; (ii) declines in table games revenues at each wholly owned subsidiary
due to decreases in the amounts wagered at each of these properties and
decreases in the percentage of wagers won by Lady Luck Natchez and Lady Luck
Biloxi; (iii) the addition of two competitive casinos and a significant number
of hotel rooms by MLI's competitors; (iv) a deteriorating local economy in
Natchez, Mississippi and decreasing customer headcounts at LLM; (v) a growing
disparity in relation to its competitors in the amenities which LLB is able to
offer its customers such as on-site hotel rooms for table games players; and
(vi) operational changes and an absence of capital improvements at LLCC in
addition to increased competition from certain nearby casinos. The effects of
these items were partially offset by: (i) an increase in the Company's equity in
net income of unconsolidated affiliates; (ii) a full year of operation of
Country Casino adjacent to Lady Luck Rhythm & Blues in 1997 which had opened on
May 21, 1996; (iii) an increase in LLB's slot machine revenues due to an
increase in the amounts wagered; (iv) LLM's purchase of the River Park Hotel on
April 15, 1996; and (v) MLI's acquisition of the 120-room Riverbluff Hotel in
Helena, Arkansas on July 3, 1996.
20
<PAGE>
Access to the Lady Luck Rhythm & Blues/Country Casino Complex's two
casinos, hotel and pavilion was severely restricted from July 16, 1997 through
August 3, 1997. On July 16, 1997, a barge with a large boom attachment hit the
Helena Bridge which crosses the Mississippi River and connects Arkansas and
Mississippi. The resulting structural damage to the bridge caused the Arkansas
Department of Transportation to close the bridge until August 4, 1997. The
bridge provides access to MLI's Arkansas customers upon which it is highly
dependent. Gross revenues of Lady Luck Rhythm & Blues/Country Casino Complex
since the bridge's reopening indicate a successful recovery evidenced by a 6%
increase in its gross revenues for the fourth quarter of 1997 compared to the
fourth quarter of 1996. The adverse effects during the bridge's closure were
partially offset by a full year of operation of Country Casino in 1997 which had
opened May 21, 1996. The net effect of these changes and the addition of
competitive facilities described more fully below resulted in gross revenues at
the Lady Luck Rhythm & Blues/Country Casino Complex decreasing to $94.3 million
during the year ended December 31, 1997 from $95.2 million during the year ended
December 31, 1996, a decrease of $900,000 or 1%. MLI's largest area of decrease
during these comparative years was table games. Primarily due to decreases in
the amounts wagered on table games, gross table games revenues decreased $1.7
million for the year ended December 31, 1997 from the prior year. This decrease
was offset partially by an increase in food and beverage revenues of $900,000
primarily due to increased food and beverage furnished to customers as
complimentaries. These increases in complimentaries were a necessary response to
the additional competitor facilities added in 1996 as described above.
Slot machine, table games and food and beverage revenues decreased $1.0
million, $1.2 million and $500,000, or 4%, 26% and 16%, respectively, at Lady
Luck Natchez during the year ended December 31, 1997 compared to the prior year.
In addition to the adverse effects of flooding on the Mississippi river and
other adverse weather conditions, which twice closed its operations for a total
of approximately 18 days during the year ended December 31, 1997 and caused
lingering disruptive effects for a period after each reopening, these decreases
were due to a deteriorating local economy in Natchez, Mississippi. The decreases
in gross casino revenues, while primarily due to decreases in the amounts
wagered, were also due to declines in the win percentages from 1996 to 1997. The
amounts wagered may have also decreased in part due to fewer rooms, food and
beverage furnished to customers on a complimentary basis during the comparative
periods. This decrease in complimentary food and beverage was a significant
factor in the decline in gross food and beverage revenues.
Lady Luck Bilox's gross revenues increased $400,000 during the year ended
December 31, 1997 compared to 1996. This increase occurred primarily between the
three month periods ended March 31, 1997 and March 31, 1996 during which time an
8% increase in the average number of slot machines and a 20% increase in the
average daily net win per slot machine increased Lady Luck Biloxi's slot machine
revenues by $1.2 million. This increase in slot machine revenues was primarily a
result of increased marketing expenditures and increased food and beverage
furnished as complimentaries to customers during that time. The increase in slot
machine revenues was offset partially by decreases in table game revenues each
quarter during the year ended December 31, 1997 compared to the respective prior
year quarters. These declines in table games revenues were primarily due to
decreases in total amounts wagered which has been caused in part due to a
growing disparity in the amenities which LLB is able to offer its customers in
relation to its competitors, some of which are able to offer on-site hotel rooms
and entertainment. LLB experienced a significant decrease in gross revenues
since the opening of additional competitive facilities in its market,
principally the opening of Imperial Palace in December 1997, which competitive
trend is expected to continue.
LLCC's slot machine revenues declined $1.1 million between the years ended
December 31, 1997 and 1996. This decrease was due to both a decrease in the
total amount wagered on slot machines and a decrease in the related win
percentage. During these comparative periods, LLCC's total amount wagered on
slot machines decreased 17%. LLCC's decreases were due in part to operational
changes, an absence of capital improvements at the facility and increased
competition from certain nearby casinos. Subsequent to December 31, 1997 and
effective February 19, 1998, LLCC sold its real property and substantially all
operating assets to the holder of its mortgage note in exchange for forgiveness
of the note which, as of December 31, 1997, had a $2,750,000 balance. The sale
resulted in a loss of $7,287,000, recognized during 1997, including reserves for
certain remaining real property leases.
The Company's equity in net income of the Bettendorf Joint Venture
increased $300,000, or 11%, during the year ended December 31, 1997 compared to
the prior year. This increase is primarily due to a 13% increase in slot machine
revenues. The Bettendorf Joint Venture's increase in slot machine revenues was
due to an increase in both the average daily net win per slot machine and the
average number of slot machines in operation as further described in the tables
that follow below.
21
<PAGE>
The Company's equity in net income of the Bally's Joint Venture increased
$600,000 during the nine month period ended September 30, 1997 (the effective
date the Company's 35% partnership interest was sold to Bally's) compared to the
year ended December 31, 1996. As the interest was sold during 1997, a comparison
of results between years is not meaningful. Furthermore, the Company's equity in
net income for the year ended December 31, 1996 reflects a $1.2 million
deduction for the Company's share of pre-opening expenses while none were
recognized during the nine month period ended September 30, 1997.
Casino operating expenses company-wide as a percentage of casino revenues
increased from 39% in the year ended December 31, 1996 to 41% in the year ended
December 31, 1997, primarily due to the following: (i) severe access
restrictions at the Lady Luck Rhythm & Blues/Country Casino Complex, the
temporary closings of Lady Luck Natchez and the decreases in casino revenues
from most gaming areas of the Company's other wholly owned subsidiaries which
caused fixed costs and certain variable costs which could not immediately be
eliminated to be spread over a lower revenue base; (ii) a 1% increase in the
cost of complimentary rooms, food and beverage furnished to casino customers in
relation to casino revenues; (iii) an increase in table games payroll expense at
each property in relation to table games revenue, and (iv) increases in slot
machine rentals, slot department special events and cash incentives for slot
machine players in relation to slot revenues.
Food and beverage costs and expenses, prior to reclassifying the cost of
complementaries, as a percentage of related revenues increased from 90% for the
year ended December 31, 1996 to 93% for the year ended December 31, 1997, due to
an increase in labor costs at Lady Luck Natchez and increases in the cost of
sales in relation to revenues at each property. These increases were offset
partially by a decrease in labor costs in relation to revenues at the Rhythm &
Blues/Country Casino Complex.
Gross room revenues for the River Park Hotel and the Riverbluff Hotel
increased 10% and 167%, respectively, and decreased 16% for the 173-room hotel
adjacent to Lady Luck Rhythm & Blues during years ended December 31, 1997
compared with the prior year. However, these comparisons are not for equivalent
periods because LLM purchased the River Park Hotel on April 15, 1996, MLI
acquired the 120-room Riverbluff Hotel in Helena, Arkansas on July 3, 1996 and
access to MLI's 173-room hotel adjacent to Lady Luck Rhythm & Blues was
temporarily restricted during the current year period as described above.
Selling, general and administrative expenses as a percentage of total gross
revenues remained a constant 31% during the years ended December 31, 1996 and
1997. A significant reduction in rent paid by the Rhythm & Blues/Country Casino
Complex was offset by increases in casino marketing expenditures at MLI, LLM and
LLB primarily related to direct mail, other advertising or promotions and group
sales, and increases in facility expenses at MLI for utilities, security,
insurance and property taxes. MLI's increase in facility expense was primarily
due to the addition of Country Casino. Rent paid by MLI decreased because
percentage rents under the lease during the current year were reduced due to the
temporary access restriction. In addition, rent was greater during the five
month period ended May 31, 1996 compared to the corresponding current year
period due to an additional fixed monthly rental expense of $150,000 which was
required to be paid prior to the opening of Country Casino on May 26, 1996.
Subsequent to May 31, 1996, the fixed rent was replaced with a percentage rent
which has been less than the fixed rent.
Operating (loss) income was ($15.1) million and $26.6 million for the years
ended December 31, 1997 and 1996, respectively. In addition to the changes
described above, this $41.7 million decrease in operating income was due to the
following: (i) $7.6 million reserve in 1997 for the loss on the sale of assets
as described below; (ii) project development cost write-downs and reserves in
1997 of $7.8 million as described below; (iii) a $20.7 million asset impairment
write-down in 1997 as described below; (iv) a $1.9 million loss on the sale of
investment in unconsolidated affiliate in 1997 as described below; (v) a $1.6
million increase in depreciation expense during the current year primarily
related to the acquisition of the River Park Hotel and Riverbluff Hotel and the
opening of Country Casino and the Pavilion each during 1996; and, (vi) decreased
hotel operating margins. The effects of these items were partially offset by the
following: (i) a $400,000 reduction in litigation claims; (ii) a $900,000
decrease in related party management fees from lower operating results during
the current year; and (iii) the absence of $200,000 of pre-opening expense which
was recognized during 1996 in conjunction with the opening of Country Casino and
the Pavilion.
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 $2.8 million note and the assumption of certain liabilities.
22
<PAGE>
During 1997, the Company recorded a reserve of $7.3 million to write-down the
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.
An agreement has been reached, pursuant to an existing gaming equipment
lease, to sell to the Bettendorf Joint Venture the gaming equipment that the
venture has been leasing from the Company since April 1995. The gaming equipment
will be sold for its negotiated value of $712,000 as of December 31, 1997. The
$358,000 reserve for loss on sale of assets represents the net book value in
excess of negotiated value as of December 31, 1997. The sale is effective
January 1, 1998.
During 1997, the Company wrote down various project development costs
totaling approximately $7.8 million due to changes in regulatory, political and
competitive environments and other factors.
The first write-down related to the Missouri Project. The State of Missouri
investigates applicants at its discretion and there can be no assurance that the
Company's application will be actively reviewed in future periods. In November
1997, the Missouri Supreme Court ruled that several existing Missouri gaming
projects are illegal due to their locations not being upon the Mississippi or
Missouri rivers. In addition, certain current operators in Missouri have been
experiencing poor operating results. These uncertainties have resulted in the
Company recording a $2.3 million project development write- down in 1997 related
to the Missouri Project of the remaining balance of its pre-opening and other
development costs and a $3.0 million write-down of construction in progress for
a portion of the partially completed cruising vessel which, if not used for the
Missouri Project, could be sold or possibly used in a future development
project. These valuations are based on assumptions regarding expected future
economic, market and gaming regulatory conditions. Changes in these assumptions
could result in further changes in the estimated net realizable value of the
partially completed cruising vessel.
The second write-down was related to the Vicksburg Project. The
consummation of the transactions contemplated by the agreements 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 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. The Company does not believe
that all of the conditions will be satisfied prior to the Termination Date.
While the Company does not currently intend to terminate the Horseshoe Joint
Venture Agreement, 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.
Additionally, a determination that certain assets may not be usable in the
Vicksburg Project as currently contemplated resulted in a $2.3 million write-off
of construction in progress. 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.
Additionally, the Company had previously planned to construct and operate a
casino in Gulfport, Mississippi (the "Gulfport Project"). However, due to
increased competition in the Gulfport gaming market, in 1997 the Company
suspended further development of the Gulfport Project and is not currently
engaged in negotiating either an agreement to sell or develop these leaseholds.
The Company intends to cancel these leases at the earliest date allowable
pursuant to the lease agreements. During 1997, the Company provided a project
development reserve of approximately $162,000 to fully reserve remaining future
minimum lease payments net of estimated sublease rentals for the remaining LLG
leases. Reserves of approximately $350,000 and $600,000 had previously been
provided during 1996 and 1995, respectively.
Lastly, during 1997, the Company provided reserves of approximately $50,000
related to its investment in Lady Luck New Mexico ("LLNM") for a total reserve
related to LLNM, including 1996 and 1995 reserves, of approximately $250,000.
The Company received $200,000 cash during the year for its remaining investment
balance.
The Company evaluated the recoverability of LLB's long-lived assets in 1996
due to recurring operating losses. Based on the criteria established under
Financial Accounting Standards Board Statement No. 121 ("SFAS 121"), the Company
continued to evaluate LLB's long-lived assets for impairment. During the fourth
quarter of December 31, 1997, pursuant to SFAS 121 the Company recorded an asset
impairment write-down of $20.7 million. The Company considered the marginal
historical operating results and the significant downturn in the operating
results of LLB since the opening of additional competitive facilities in its
market, principally the opening of Imperial Palace in December 1997, an
indicator
23
<PAGE>
of impairment. In performing its review for recoverability, the Company compared
the projected undiscounted future cash flows to the carrying value of LLB's
long-lived assets. The net carrying value of LLB's long-lived assets before
write-down were $31.5 million at December 31, 1997. As the net carrying value of
long-lived assets exceeded the estimated undiscounted future cash flows, the
Company was required to recognize an impairment loss and write-down long-lived
assets to their fair market value of $10.8 million. Fair value became the new
cost basis for the impaired assets and previously accumulated depreciation was
eliminated. As active market quotations were not available, the Company measured
fair value by discounting estimated cash flows. Considerable management judgment
was necessary to estimate discounted future cash flows. Accordingly, actual
results could vary significantly from such estimates.
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 sale resulted in a loss of $1,912,000 which represents the
difference between the sales price and the net investment in the Bally's Joint
Venture and related assets. In 1995, the Company had provided a reserve of
$350,000 relating to its investment in the Bally's Joint Venture.
The net (loss) applicable to common stockholders was ($38.5) million or
($1.31) per share for the year ended December 31, 1997 compared with net income
applicable to common stockholders of $4.4 million or $0.15 per share for the
year ended December 31, 1996. This $42.9 million or $1.46 per share decrease in
net income applicable to common stockholders was primarily due to the following:
(i) the $41.7 million decrease in operating income as described above; a
$500,000 decrease in other non-operating income; (iii) a $200,000 increase in
preferred stock dividends caused by compounding return on dividends not paid in
cash; (iv) a $200,000 increase in net interest expense due primarily to a
decrease in interest capitalized in the current year; and (v) a $200,000
decrease in interest income due to greater cash invested in the prior year
before the opening of Country Casino.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company's gross revenues increased from $158.4 million in 1995 to
$174.2 million during 1996, an increase of $15.8 million or 10%. The opening of
Country Casino adjacent to Lady Luck Rhythm & Blues in Coahoma County,
Mississippi, the acquisition of the 147-room River Park Hotel in Natchez,
Mississippi, the opening of the casino at the Company's joint venture with
Bally's in Robinsonville, Mississippi, and the opening of Lady Luck Bettendorf,
in Bettendorf, Iowa, improvements in its operations and income from leasing a
gaming vessel and certain equipment to Lady Luck Bettendorf were primarily
responsible for this increase in the Company's 1996 gross revenues, over the
prior year.
Lady Luck Rhythm & Blues generated $7.6 million of the Company's overall
$15.8 million increase in gross revenues. A 43% increase in the average number
of slot machines partially offset by a 25% decrease in the average daily net win
per slot machine accounted for $5.3 million of Lady Luck Rhythm & Blues'
increase in gross revenues. Country Casino, which opened May 21, 1996, increased
the average number of slot machines in operation and decreased the average daily
net win per slot machine significantly. In addition, increased competition from
the casinos in Tunica, Mississippi, during the second half of 1996 had a
significant adverse effect on average daily net win per slot machine. These
changes, when analyzed quarterly, indicate, for the first quarter of 1996, an
approximately consistent average daily net win per slot machine while the
average number of slot machines in operation increased by 14%; and for the nine
months ended December 31, 1996, a 52% increase in the average number of slot
machines in operation partially offset by a 30% decrease in the average daily
net win per slot machine. Increases in food and beverage, hotel and other
revenues offset partially by a 5% decrease in table and card games revenues
accounted for the balance of the increase in gross revenues at Lady Luck Rhythm
& Blues.
LLM's gross revenues increased $2.4 million in 1996 compared to 1995. LLM
acquired and took over operation of the 147-room Best Western River Park Hotel
in Natchez, Mississippi on April 15, 1996. During the period from April 15, 1996
through December 31, 1996, the hotel's gross room revenues were $1.3 million.
The remainder of LLM's increase in gross revenues was primarily from increases
in food and beverage operations at the casino in addition to the revenues from
food and beverage sold at the hotel site.
24
<PAGE>
The Bally's Joint Venture, which was formed March 31, 1995, included only
hotel operations until the December 18, 1995 opening of the casino. During 1996,
the Company's equity in net income of unconsolidated affiliates from the Bally's
Joint Venture was $700,000, after deducting the Company's share of pre-opening
expenses of $1.1 million, a net increase of $1.6 million over the Company's
$900,000 equity in net loss of unconsolidated affiliates in the nine months
ended December 31, 1995.
During 1996, the Company's equity in net income of unconsolidated
affiliates from the Bettendorf Joint Venture was $3.1 million, an increase of
$3.3 million over the Company's $200,000 equity in net loss of unconsolidated
affiliates in 1995. The Company's $200,000 loss for 1995 reflects the deduction
of the Company's share of pre-opening expenses of $1.2 million upon commencement
of operations on April 21, 1995 and the completion of the outlet mall later that
year. In addition, for the leasing of a gaming vessel and equipment to the
Bettendorf Joint Venture, the Company recognized revenue of $3.8 million in
1996, a $1.3 million increase over the $2.5 million of revenue recognized during
the period from commencement of operations through December 31, 1995.
Casino operating expenses as a percentage of casino revenues increased from
36% in 1995 to 39% in 1996, primarily due to the following: (i) a 1.0% increase
in cash incentives to slot machine players in relation to slot machine net
revenues, (ii) a 1.3% increase in the cost of complimentary rooms, food and
beverage furnished to casino customers in relation to casino revenues, (iii) an
8% decrease in table and card games net revenues and a 3% increase in related
expenses exclusive of complimentaries, and (iv) an increase in the local gaming
tax rate paid by LLM.
Food and beverage gross revenues increased from $14.6 million in 1995 to
$16.9 million in 1996, an increase of $2.3 million or 16%, including a 37%
increase in complimentary food and beverage revenues. This increase was also due
to higher customer counts and additional outlets at the Lady Luck Rhythm &
Blues/Country Casino complex, improvements at Lady Luck Natchez and the addition
of outlets at the River Park Hotel, and was offset partially by changes in
outlets at Lady Luck Biloxi. Food and beverage costs and expenses, prior to
reclassifying the cost of complimentaries, as a percentage of related revenues
declined from 102% for 1995 to 91% for 1996, continuing a trend of lowering
costs of sales and labor expenses as a percentage of food and beverage revenues
which was partially offset by the costs associated with outlet changes at Lady
Luck Biloxi.
Hotel total gross room revenues and operating results between periods are
not comparable because ORD's hotel operations, which commenced August 25, 1994,
were contributed to the Bally's Joint Venture effective March 31, 1995. In
addition, LLM purchased the River Park Hotel on April 15, 1996 and MLI acquired
the 120-room Riverbluff Hotel in Helena, Arkansas on July 3, 1996.
Notwithstanding the lack of comparability of total gross room revenues, gross
room revenues at MLI's 173-room hotel adjacent to Lady Luck Rhythm & Blues
increased 7% in 1996 compared to 1995.
Despite an increase in selling, general and administrative expenses from
$49.5 million in 1995 to $53.8 million in 1996, they remained constant as a
percentage of gross revenues for both 1995 and 1996 at 31%. The $4.3 million
increase in expense is primarily due to the following: (i) an increase of $2.2
million for marketing expenses primarily related to the Country Casino and the
Pavilion, (ii) $2.1 million for the BRDC Obligation and Management/License Fee
Overhead Costs in connection with, and, effective January 1, 1996, the New
Marketing Agreements,(iii) a $1.3 million increase in rent, utilities and other
expenses related to the new Country Casino, Pavilion, River Park Hotel and
Riverbluff Hotel operations, and (iv) $200,000 due to reserving the cost of
demolishing certain pre-existing structures at the Vicksburg Site during 1996,
offset partially by: (i) a $600,000 reduction in fees and costs, from $1.7
million in 1995 to $1.1 million in 1996, related to the solicitation of the
amendments and waivers of continuing defaults under the Indenture relating to
the 2001 Notes which was completed in March 1996, and (ii) a $600,000 reduction
in development costs due to focusing development efforts.
Related party management/license fees decreased from $5.5 million during
1995 to $2.3 million during 1996, a decrease of $3.2 million or 58%. This
decrease was due to the Company entering into the New Marketing Agreements in
replacement of the Old Management Agreements as described above offset partially
by certain abatements totaling $700,000 deducted in 1996 from the
management/license fees the Company received from the Bettendorf Joint Venture.
In addition, under the New Marketing Agreements, the BRDC Obligation and
Management/License Fee Overhead Costs totaling $2.1 million are included in
selling, general and administrative expense for 1996, while, in 1995, the cost
of these
25
<PAGE>
items was the responsibility of related parties, wholly-owned by Mr. Tompkins,
pursuant to the Old Management Agreements.
Operating income was $26.6 million and $24.1 million for 1996 and 1995,
respectively. This increase is due to the following: (i) a $5.0 million increase
in equity in net income of unconsolidated affiliates, (ii) reduced related party
management/license fees, (iii) increased food and beverage revenues and
operating margins, (iv) consistent selling, general and administrative expenses
as a percentage of gross revenues on an expanded revenue base, and (iv) the
acquisition of two additional hotel operations, offset partially by: (i)
increased casino operating expenses as a percentage of casino revenues, and (ii)
a $1.1 million settlement of a claim.
Interest expense, net of capitalized interest, increased from $20.1 million
in 1995 to $22.2 in 1996, an increase of $2.1 million or 10%. This increase is
primarily attributable to a 1 3/8% increase in the interest rate on the 2001
Notes offset partially by a $6.5 million higher balance outstanding of the 2001
Notes for a portion of 1995.
The net income applicable to common stockholders was $5.1 million or $0.18
per share in 1995 compared with net income applicable to common stockholders of
$4.4 million or $0.15 per share for 1996. This decrease was primarily due to
increases in interest expense and preferred stock dividends offset partially by
increased operating income as described above. In addition, net income
applicable to common stockholders for 1995 also included an extraordinary gain
of $2.3 million or $0.08 per share resulting from an exchange of common stock
for indebtedness.
Certain Risks and Uncertainties
LLGC, through its subsidiaries and affiliates, owns and operates gaming
casinos in Mississippi and Iowa and intends to develop projects in Missouri and
Vancouver, British Columbia. The entities owning such casinos and any entities
owning casinos in the future are or will be required to obtain and maintain
certain gaming licenses from the applicable state regulatory authorities and
comply with certain regulations with respect thereto. Although the Company
believes it is in material compliance with all applicable gaming regulations,
non-compliance by the Company could have a material adverse effect on the
Company's operations. Generally, regulatory authorities have broad discretion in
granting, renewing and revoking gaming licenses. LLGC itself is required to be
found suitable to own the entities directly or indirectly owning such casinos.
In addition, the Company's directors and many of the employees of such casinos
are required to obtain gaming licenses. Where it has not already done so, the
Company intends to apply for such licenses and to have its employees, to the
extent required, apply for such licenses. All directors and executive officers
of the Company have received all necessary approvals with respect to the
Operating Casinos and have received, applied for or will apply for all necessary
approvals with respect to the Development Stage Projects and the Pre-development
Stage Project. While the Company has received certain gaming licenses in the
states of Mississippi, Colorado and Iowa, the Company has not received licenses
in any other jurisdiction. There can be no assurances that each casino, officer,
director, or the appropriate gaming employees will receive (where such has not
yet been received) or maintain the necessary gaming licenses, or that the
Company or its casinos will be able to operate successfully or profitably under
the terms of any such licenses. The failure of the Company or any of its key
personnel to obtain or retain a license in a particular jurisdiction could have
a material adverse effect on the Company's ability to obtain or retain licenses
in other jurisdictions.
There is a substantial risk that the supply of gaming facilities in
Mississippi will exceed the demand for gaming, which could have a material
adverse effect on the Company's operating results. As a result of increased
competition (including the opening of another competing casino in December 1997
in Biloxi), Lady Luck Biloxi became unprofitable on an operating basis causing
revenues to decline significantly since that time. In addition, DeSoto County,
the northwestern-most Mississippi County and nearest to Memphis, could, under
existing state law, vote to authorize gaming activities which would increase
competition. The voters of DeSoto County have voted against legalized gaming on
three occasions, most recently in November, 1996. However, local referenda can
be held during presidential election years, and no assurance can be given that
gaming will not be approved in DeSoto County in future elections. Additionally,
in Arkansas, a gaming referendum, which, if passed, would have legalized certain
forms of gaming at certain locations, was defeated in November of 1996. If
gaming were legalized in certain areas of Arkansas or, to a lesser extent, in
DeSoto County, it could have a material adverse effect on the Company's Coahoma
County facilities which generate a significant portion of the Company's
consolidated revenues and operating income. Furthermore, the Choctaw Indian
Tribe negotiated a compact with the State
26
<PAGE>
of Mississippi and has opened a land-based casino located within approximately
100 miles to the east of Jackson, Mississippi which has affected Lady Luck
Natchez and, if developed, could affect the Vicksburg Project. The Company also
competes with gaming facilities nationwide. It is also possible that substantial
local and nationwide competition could cause the supply of gaming facilities to
exceed the demand for gaming. Additionally, certain of the Company's competitors
have more gaming industry experience, larger operations or significantly greater
financial and other resources than the Company. Given these factors it is
possible that substantial competition could have a material adverse effect on
the Company's future results of operations.
The Lady Luck Rhythm & Blues/Country Casino Complex's revenues and
operating results in 1997 were materially adversely affected by a temporary
closure by the Arkansas Department of Transportation of the Helena Bridge. These
casinos are highly dependent on patronage by residents of Arkansas. A change in
general economic conditions, future closure of the Helena Bridge, or the extent
and nature of regulations enabling casino gaming in Arkansas could adversely
effect these casinos' future operating results.
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 made an
assessment of the systems which will 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.
The Company is highly leveraged (see Liquidity and Capital Resources below
for additional information).
27
<PAGE>
Operating Casinos
Dollar amounts shown in the following tables for gross revenues, net
revenues, management/license fee and operating income are in millions. Operating
margin is calculated as operating income divided by net revenues.
<TABLE>
<CAPTION>
Lady Luck Rhythm & Blues/Country Casino Complex (a)
% Increase % Increase
(Decrease) (Decrease)
Year ended December 31, 1997 vs. 1996 vs.
1997 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C>
Gross revenues................... $ 94.3 $ 95.2 $ 87.6 (1) 9
Net revenues..................... 86.8 88.9 83.1 (2) 7
Management/license fee 3.0 3.1 3.1 (3) -
Operating income................. 19.5 22.9 27.5 (15) (17)
Operating margin................. 22% 26% 33% (4)pts (7)pts
Average daily net win per
table game................... $602 $820 $1,186 (27) (31)
Average number of tables
in operation................. 50 43 32 16 34
Average daily net win per
slot machine................. $143 $169 $224 (15) (25)
Average number of slot
machines in operation........ 1,343 1,141 797 18 43
</TABLE>
____________________
(a) County Casino and the Pavilion opened May 21, 1996; therefore,
comparisons may not be meaningful.
<TABLE>
<CAPTION>
Lady Luck Natchez
% Increase % Increase
(Decrease) (Decrease)
Year ended December 31, 1997 vs. 1996 vs.
1997 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C>
Gross revenues................... $30.6 $33.3 $30.9 (8) 8
Net revenues..................... 28.4 30.4 29.0 (7) 5
Management/license fee 1.0 1.1 1.1 (9) -
Operating income................. 2.6 4.4 5.7 (41) (23)
Operating margin................. 9% 14% 20% (5)pts (6)pts
Average daily net win per
table game................... $612 $765 $764 (20) -
Average number of tables
in operation................. 16 17 19 (6) (11)
Average daily net win per
slot machine................. $103 $109 $116 (6) (6)
Average number of slot
machines in operation........ 616 584 537 5 9
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Lady Luck Bettendorf (a)
% Increase % Increase
(Decrease) (Decrease)
Year ended December 31, 1997 vs. 1996 vs.
1997 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C>
Gross revenues................... $ 75.7 $ 68.5 $ 38.1 11 80
Net revenues..................... 71.6 65.2 36.5 10 79
Management/license fee........... 1.6 1.1 0.8 45 38
Operating income................. 6.8 6.4 (0.1) 6 6,500
Operating margin................. 9% 10% - (1)pt 10pts
Average daily net win per
table game................... $701 $717 $853 (2) (16)
Average number of tables
in operation................. 38 36 33 6 9
Average daily net win per
slot machine................. $180 $173 $141 4 23
Average number of slot
machines in operation........ 903 824 788 10 5
</TABLE>
____________________
(a) Lady Luck Bettendorf is 50% owned by LLQC. The Company includes 50% of
its net income as equity in net income of affiliates using the equity method of
accounting.
<TABLE>
<CAPTION>
Lady Luck Biloxi
% Increase % Increase
(Decrease) (Decrease)
Year ended December 31, 1997 vs. 1996 vs.
1997 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C>
Gross revenues................... $31.9 $ 31.5 $ 31.0 1 2
Net revenues..................... 28.9 28.7 29.1 1 (1)
Management fee................... 1.1 1.1 1.1 - -
Operating (loss)................. (23.6) (1.1) (1.4) (2,045) 21
Operating margin................. (82)% (4)% (5)% (78)pts 1pt
Average daily net win
table game................... $567 $610 $604 (7) 1
Average number of
tables in operation.......... 21 23 26 (9) (12)
Average daily net win per
slot machine................. $92 $92 $89 - 3
Average number of slot
machines in operation........ 669 630 590 6 7
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Lady Luck Central City
% Increase % Increase
(Decrease) (Decrease)
Year ended December 31, 1997 vs. 1996 vs.
1997 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C>
Gross revenues................... $5.1 $6.5 $6.9 (22) (6)
Net revenues..................... 4.7 6.1 6.4 (23) (5)
Management fee................... 0.2 0.2 0.3 - (33)
Operating (loss)................. (9.1) (1.2) (1.2) (658) -
Operating margin................. (194)% (20)% (19)% (174)pts (1)pt
Average daily net win per
table game................... $90 $132 $165 (32) (20)
Average number of tables
in operation................. 6 6 6 - -
Average daily net win per
slot machine................. $38 $50 $45 (24) 11
Average number of slot
machines in operation........ 300 294 341 2 (14)
</TABLE>
Liquidity and Capital Resources
During the year ended December 31, 1997, the Company generated $10.1
million in cash from operations. Cash flow from operations and cash on hand at
the beginning of the year were the primary sources of cash during the year ended
December 31, 1997. The primary uses of cash and non-cash resources during the
year ended December 31, 1997, other than operating expenditures, include:
A. $3.6 million cash for the purchase of property and equipment,
including the cost of remodeling a portion of the River Park Hotel,
Lady Luck Rhythm & Blues and Lady Luck Biloxi.
B. $3.9 million cash for payment of debt and slot contracts.
C. $700,000 for the acquisition of slot machines and other assets by
certain subsidiaries for the incurrence of indebtedness.
LLCC did not generate positive operating cash flow during the year ended
December 31, 1997. Due primarily to debt service requirements on an equipment
note payable and a mortgage note, LLCC required cash infusions of $1.2 million
during the year ended December 31, 1997 and is expected to require additional
cash infusions of $700,000 in 1998 for: (i) operating cash shortfalls prior to
the sale on February 19, 1998; (ii) liabilities remaining as of the effective
sale date of LLCC's real property and operating assets; and, (iii) payments on
the remaining parking lot leases including the purchase of these lots as
required by the contracts, a portion of which shall be financed by the sellers.
Subsequent to December 31, 1997, LLCC acquired a portion of this leased property
with the remainder to be acquired in 1999. LLCC will require additional cash
infusions related to these leases in periods beyond 1998 for lease, purchase and
debt service.
Additional casino and hotel capacity has been added in close proximity to
LLB and additional casino and hotel capacity are currently under construction in
Biloxi. The opening of these facilities has had and, the Company believes the
opening of the facilities under construction, will have an adverse effect upon
LLB's operating results. The complete extent of the long-term effects on LLB's
results of operations cannot presently be estimated. The Company expects LLB
will require cash infusions in 1998 of an undetermined amount.
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
30
<PAGE>
casino, a 30-50 slip marina, a 500-car parking garage and a bypass over the
nearby railroad to improve access. The 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. The Company does not expect any cash
distributions from the Bettendorf Joint Venture during 1998.
Pursuant to a Partnership Interest Redemption Agreement, on November 3,
1997, the Company received $15,250,000 cash for its investment in the Bally's
Joint Venture after it received certain regulatory approvals. In accordance with
the indenture (the "Indenture") covering the 2001 Notes (as defined below), the
Company has 180 days after receiving the $15,250,000 to invest the money in a
Related Business (as defined in the Indenture). If the Company does not make an
investment or does not invest the $15,250,000 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
proceeds that was not invested in a Related Business. The cash has been invested
since it was received and has accumulated to $15,388,000 as of December 31,
1997. Accordingly, this cash has been classified as Restricted Cash as of
December 31, 1997.
Lady Luck Rhythm & Blues could add up to 250 hotel rooms which would be
located adjacent to Country Casino. Up to $6.0 million of the cost of such
additional hotel rooms including site preparation and related construction is
permitted by the Indenture covering the 2001 Notes to be funded by secured
non-recourse indebtedness; however, there can be no assurance that such
financing would be available, or if available, will be on terms satisfactory to
the Company. In addition, MLI intends to complete various improvements and
renovations during 1998 including: (i) remodeling portions of the Rhythm & Blues
Casino; (ii) modify traffic patterns and adding additional paved parking areas
for 360 automobiles and 15 tractor-trailers; (iii) site-work for the hotel rooms
described above; and, (iv) a new property-wide PBX system for more efficient
communications and lower operating costs. Such capital expenditures are
currently estimated to not to exceed approximately $2.0 million.
Lady Luck Natchez is required under its current lease to move its casino
barge several hundred feet to another docking facility on land subject to the
existing lease by February 1998. Management has not relocated the casino barge
and is continuing negotiations with the lessor to allow the casino to remain in
its current location. Should such lease amendment not be available on terms
satisfactory to the Company, the cost of relocating the barge is currently
estimated not to exceed $1.0 million. In addition, Lady Luck Natchez intends to
complete various improvements and renovations during 1998 including: (i) the
addition of a gourmet restaurant located in close proximity to the casino; (ii)
remodeling of the casino and buffet; (iii) refurbishing of certain rooms at the
River Park Hotel; and (iv) the addition of 260 parking spaces within walking
distance or close proximity of the casino. Such capital expenditures are
currently estimated to be approximately $1.5 million.
Lady Luck Biloxi is exploring remodeling options to better position itself
within the Mississippi Gulf Coast gaming market. Such remodeling of the barge
and adjoining beach area are currently estimated not to exceed $1.0 million.
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 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 anticipates that it will not repurchase any portion of
the 2001 Notes in 1998 other than from a portion of the proceeds from the sale
of its interest in the Bally's Joint Venture or in connection with a
refinancing.
The Company has begun to explore various options to refinance the 2001
Notes. However, there can be no assurance the Company will continue these
pursuits and, if pursued, that terms acceptable to the Company can be
negotiated.
31
<PAGE>
The Company has an agreement for the construction of a cruising gaming
vessel in the amount of $16.0 million and as of December 31, 1997, approximately
$6.0 million has been paid under this contract and approximately $1.9 million is
included in construction payables. It is anticipated that this vessel will be
utilized by LLK. However, construction has been discontinued and is not
anticipated to resume until such time as LLK is selected for investigation by
the State of Missouri with regard to its gaming license application.
No further significant expenditures for projects under development are
anticipated to be made by the Company from existing cash or cash flow from
operations. If the Company determines it needs additional funds, there can be no
assurance that such funds, whether from equity or debt financing or other
sources, will be available, or if available, will be on terms satisfactory to
the Company.
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, 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 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.
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 $7.3 million as of March 6, 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 $301,000 as of March 6, 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; however, the Company intends to
continue to defend itself in this matter.
On November 5, 1996, the United States Bankruptcy Court for the Northern
District of Mississippi dismissed a lawsuit which had been brought by Superior
Boat Works, Inc. ("Superior") against LLM on or about September 23, 1993.
Superior had previously done construction work for LLM on its Natchez barge
("Lady Luck Natchez"), as well as some minor preparatory work on one other barge
of the Company. Such proceeding alleged damages of approximately $47,000,000, of
which approximately $3,400,000 was alleged for additional construction work on
Lady Luck Natchez and the remaining amount was alleged for unjust enrichment,
for causing the bankruptcy of Superior and for future work Superior expected to
perform for the Company. Superior has appealed the decision to dismiss the
action. The Company, based in part on the advice of its counsel, believes that
it has meritorious defenses and does not believe that the appeal of the decision
will have a material adverse effect on the Company's financial condition or
results of operations.
32
<PAGE>
During November 1996, LLCC entered into a Memorandum of Understanding (the
"Memorandum") with BWCC, Inc., which does business as Bullwhackers-Central City
("Bullwhackers"). The Memorandum provided for a combination of the respective
companies' gaming establishments which currently operate on adjacent real
property in Central City. As a result of the Memorandum, the parties negotiated
and purportedly executed a definitive Operating Agreement and Lease Agreement in
September 1997. During the fourth quarter of 1997, Bullwhackers refused to honor
such definitive agreements and the Company has commenced suit against
Bullwhackers accordingly.
The Company is highly leveraged. As of December 31, 1997, the Company's
total indebtedness was approximately $181.3 million and its stockholders'
deficit was approximately $32.2 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.
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.
The Company is considering an amendment to the Amended Certificate of
Incorporation of the Company in order to enable the Company to effect a reverse
stock split at an as yet undetermined ratio and a corresponding increase in the
par value of the Company's Common Stock.
Impact of Inflation
Absent changes in competitive and economic conditions or in specific prices
affecting the industry, management does not expect that inflation will have a
significant impact on the Company's operations. Changes in specific prices (such
as fuel and transportation prices) relative to the general rate of inflation may
have a material effect on the hotel-casino industry. There has been no material
impact from inflation during the periods covered by the accompanying financial
statements.
Seasonality and Weather
A flood or other severe weather condition could cause the Company to lose
the use of one or more dockside facilities for an extended period. The inability
to use a dockside facility during any period could have a material adverse
effect on the Company's financial results. Seasonal revenue fluctuations may
occur at the Company's existing and proposed casinos in Mississippi, Iowa and
Missouri.
33
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Report of Independent Public Accountants........................................................ 35
Consolidated Balance Sheets as of December 31, 1997 and 1996.................................... 36
Consolidated Statements of Operations for the years ended December 31, 1997, 1996
and 1995..................................................................................... 38
Consolidated Statements of Mandatory Cumulative Redeemable Preferred Stock and
Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995.................... 40
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996
and 1995..................................................................................... 41
Notes to Consolidated Financial Statements...................................................... 44
</TABLE>
34
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Lady Luck Gaming Corporation:
We have audited the accompanying consolidated balance sheets of Lady Luck Gaming
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of operations, mandatory
cumulative redeemable preferred stock and stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lady Luck Gaming Corporation
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 25, 1998
35
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and 1996 (in thousands)
ASSETS
1997 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 19,552 $ 15,490
Restricted cash.......................................... 15,388 -
Accounts receivable...................................... 786 1,276
Inventories.............................................. 957 1,198
Assets held for sale..................................... 2,791 -
Prepaid expenses......................................... 2,456 1,559
Total current assets................................. 41,930 19,523
Property and equipment:
Land and land improvements............................... 17,974 26,604
Building and improvements................................ 95,472 113,500
Furniture, fixtures and equipment........................ 36,279 50,306
149,725 190,410
Less accumulated depreciation............................ (26,525) (28,736)
123,200 161,674
Construction in progress................................. 5,175 11,445
Total property and equipment, net 128,375 173,119
Other assets:
Pre-opening costs........................................ - 1,353
Deferred financing fees and costs, net of
accumulated amortization of $3,347 and
$2,482 as of December 31, 1997 and 1996,
respectively......................................... 2,740 3,605
Investment in unconsolidated affiliates, net 9,313 21,449
Other.................................................... 2,948 4,669
15,001 31,076
TOTAL ASSETS.................................................. $ 185,306 $ 223,718
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
36
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS (continued)
As of December 31, 1997 and 1996
(in thousands, except share and per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
<S> <C> <C>
Current liabilities:
Current portion of long-term debt........................ $ 4,481 $ 3,385
Accrued interest......................................... 1,846 1,825
Accounts payable......................................... 5,178 4,416
Construction payables.................................... 1,957 1,957
Accrued property taxes................................... 1,375 1,753
Other accrued liabilities................................ 7,421 6,556
Total current liabilities............................ 22,258 19,892
Long-term debt:
Mortgage notes payable................................... 173,500 173,500
Other long-term debt..................................... 3,314 7,581
Total long-term debt................................. 176,814 181,081
Total liabilities............................... 199,072 200,973
Commitments and contingencies (Notes 14, 15, 16 and 17)
Series A mandatory cumulative redeemable preferred
stock, $42.44 and $37.89, respectively per share
liquidation value, 1,800,000 shares authorized,
433,638 shares issued and outstanding 18,402 16,430
Stockholders' equity:.........................................
Common stock, $.001 par value, 75,000,000 shares
authorized, 29,285,698 shares issued and
outstanding as of December 31, 1997
and 1996............................................. 29 29
Additional paid-in capital............................... 31,382 31,382
Accumulated deficit...................................... (63,579) (25,096)
Total stockholders' equity........................... (32,168) 6,315
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY..................................... $ 185,306 $ 223,718
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
37
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK GAMING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands, except share and per share amounts)
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Casino.................................... $ 138,860 $ 143,886 $ 138,412
Food and beverage......................... 17,152 16,928 14,556
Hotel..................................... 4,216 3,948 2,635
Equity in net income (loss) of
unconsolidated affiliates............. 4,724 3,815 (1,137)
Other..................................... 5,522 5,657 3,945
Gross revenues........................ 170,474 174,234 158,411
Less: Promotional
allowances....................... (13,183) (12,527) (8,821)
Net revenues.......................... 157,291 161,707 149,590
Costs and expenses:
Casino.................................... 57,301 56,806 49,703
Food and beverage......................... 6,644 6,928 8,582
Hotel..................................... 2,236 1,925 1,667
Other..................................... 258 282 310
Selling, general and
administrative........................ 52,939 53,786 49,539
Related party management/license
fees.................................. 1,384 2,317 5,520
Depreciation and amortization 12,886 11,289 9,694
Reserve for loss on sale of assets........ 7,621 - -
Pre-opening expenses...................... - 247 -
Litigation claims......................... 700 1,100 -
Project development cost write-
downs and reserves.................... 7,784 404 509
Asset impairment write-down............... 20,698 - -
Loss on sale of investment in
unconsolidated affiliate.............. 1,912 - -
Total costs and expenses.............. 172,363 135,084 125,524
Operating income (loss)........................ (15,072) 26,623 24,066
Other income (expense):
Interest income........................... 878 1,073 1,237
Interest expense, net..................... (22,407) (22,170) (20,058)
Other..................................... 139 682 (383)
(21,390) (20,415) (19,204)
Income (loss) before income tax
(provision) benefit and
extraordinary items...................... (36,462) 6,208 4,862
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
38
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK GAMING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands, except share and per share amounts)
1997 1996 1995
<S> <C> <C> <C>
Income (loss) before income tax
(provision) benefit and
extraordinary items................... $ (36,462) $ 6,208 $ 4,862
Income tax (provision)...................... (49) (69) (401)
Income (loss) before extraordinary
items.................................. (36,511) 6,139 4,461
Extraordinary gain on early
extinguishment of debt................. - - 2,257
NET INCOME (LOSS)........................... (36,511) 6,139 6,718
Preferred stock dividends................... ( 1,972) (1,761) (1,572)
Income (loss) applicable to
common stockholders.................... $ (38,483) $ 4,378 $ 5,146
BASIC AND DILUTED NET INCOME
(LOSS) PER SHARE
Before extraordinary items and
preferred stock dividends.......... $ (1.25) $ 0.21 $ 0.15
Extraordinary items.................... $ - $ - $ 0.08
Applicable to common stockholders $ (1.31) $ 0.15 $ 0.18
Weighted average number of common
shares outstanding..................... 29,285,698 29,285,698 28,952,365
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
39
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK GAMING CORPORATION
CONSOLIDATED STATEMENTS OF MANDATORY CUMULATIVE REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
Mandatory
Cumulative Retained Total
Redeemable Common Stock Additional Earnings Stockholders'
Preferred Number Paid-in (Accumulated Equity
Stock of Shares Amount Capital Deficit) (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994........ $ 13,097 27,285 $ 27 $27,322 $ (34,620) $ (7,271)
Accrued preferred stock
dividends....................... 1,572 - - - (1,572) (1,572)
Common stock issued for debt........ - 2,000 2 4,060 - 4,062
Net income.......................... - - - - 6,718 6,718
Balance at December 31, 1995........ $ 14,669 29,285 $ 29 $31,382 $ (29,474) $ 1,937
Accrued preferred stock
dividends ..................... 1,761 - - - (1,761) (1,761)
Net income.......................... - - - - 6,139 6,139
Balance at December 31, 1996....... $ 16,430 29,285 $ 29 $31,382 $ (25,096) $ 6,315
Accrued preferred stock
dividends ..................... 1,972 - - - (1,972) (1,972)
Net income (loss)................... - - - - (36,511) (36,511)
Balance at December 31, 1997....... $ 18,402 29,285 $ 29 $31,382 $ (63,579) $ (32,168)
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
40
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $ (36,511) $ 6,139 $ 6,718
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization.............. 12,886 11,289 9,694
Amortization of bond offering
fees and costs........................... 865 865 910
Reserve for loss on sale of assets......... 7,621 - -
Pre-opening expenses....................... - 247 -
Project development cost write-downs
and reserves............................. 7,784 404 509
Asset impairment write-down................ 20,698 - -
Loss on sale of investment in
unconsolidated affiliate................. 1,912 - -
Gain on early extinguishment of debt....... - - (2,257)
(Gain) loss on sale of assets.............. - (404) 533
Equity in net (income) loss of
unconsolidated affiliates................ (4,724) (3,815) 1,137
(Increase) decrease in assets:
Accounts receivable........................ 490 (275) 210
Inventories................................ 202 (313) (89)
Prepaid expenses........................... (992) 111 637
Income tax receivable...................... - - 2,308
Increase (decrease) in liabilities:
Accrued interest........................... 21 (501) (4,178)
Accounts payable........................... 762 1,176 (3,492)
Other accrued liabilities.................. (900) (1,431) 4,443
Net cash provided by operating activities.......... 10,114 13,492 17,083
Cash flows from investing activities:
Purchase of property and equipment.............. (3,622) (21,524) (10,752)
Construction payables........................... - (1,169) (6,681)
Investment in unconsolidated affiliates......... 15,250 (15) (2,163)
Pre-opening costs............................... - (500) (427)
Restricted cash................................. (15,388) 8,858 (1,011)
Other assets.................................... 1,621 (449) 104
Net cash used in investing activities.............. (2,139) (14,799) (20,930)
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
41
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
<S> <C> <C> <C>
Cash flows from financing activities:
Net proceeds from borrowings.................... - 40 2,219
Payments on debt and slot contracts............. (3,913) (5,391) (5,138)
Net cash (used in) provided by financing
activities...................................... (3,913) (5,351) (2,919)
Net (decrease) increase in cash and cash
equivalents..................................... 4,062 (6,658) (6,766)
Cash and cash equivalents,
beginning of year............................... 15,490 22,148 28,914
Cash and cash equivalents, end of year............. $ 19,552 $ 15,490 $ 22,148
Supplemental disclosures of cash flow
information :
Cash paid during the year for:
Interest (net of amount capitalized
of $289, $514 and $762 in 1997,
1996 and 1995, respectively)............... $ 21,521 $ 21,806 $ 22,563
Income taxes paid (received)....................... $ 80 $ 225 $ (2,103)
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
42
<PAGE>
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The liquidation value of the Series A mandatory cumulative redeemable preferred
stock increased by approximately $1,972,000, $1,761,000 and $1,572,000 in unpaid
accrued dividends for the years ended December 31, 1997, 1996 and 1995,
respectively.
On April 15, 1996, Lady Luck Mississippi acquired the River Park Hotel for
approximately $4,000,000, including approximately $1,000,000 cash and a
non-recourse mortgage note for the balance.
On July 3, 1996, Magnolia Lady, Inc. acquired the Riverbluff Hotel for
approximately $1,000,000, including approximately $600,000 cash and a
non-recourse mortgage note for the balance.
In February 1995, 2,000,000 shares of common stock were issued upon the
conversion of $6,500,000 of the 2001 Notes.
On March 31, 1995, the Company contributed net assets totaling approximately
$16,100,000 to the Bally's Joint Venture.
In addition to net cash investments in and cash payments on behalf of the
Bettendorf Joint Venture during 1995 of approximately $2,100,000, the Company
contributed non-cash assets of approximately $837,000.
The Company entered into several contracts with manufacturers for the purchase
of slot machines and other assets which totaled approximately $743,000,
$3,780,000 and $111,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
The accompanying notes are an integral part of these consolidated
statements.
43
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. The Company and Basis of Presentation
The consolidated financial statements of Lady Luck Gaming Corporation
("LLGC"), a Delaware corporation, include the accounts of LLGC and its
subsidiaries (collectively the "Company"). The Company's operations primarily
include those of LLGC, Lady Luck Gaming Finance Corporation ("LLGFC"), a
Delaware corporation; Lady Luck Mississippi, Inc. ("LLM"), Lady Luck Biloxi,
Inc. ("LLB"), Lady Luck Gulfport, Inc. ("LLG"), Lady Luck Vicksburg, Inc.
("LLV"), Magnolia Lady, Inc. ("MLI"), Old River Development, Inc. ("ORD") and
Lady Luck Tunica ("LLT"), each a Mississippi corporation (collectively the
"Mississippi Companies"); Lady Luck Central City, Inc., formerly Gold Coin
Incorporated ("LLCC"), a Delaware corporation; Lady Luck Kimmswick, Inc.
("LLK"), a 93% owned Missouri corporation; Lady Luck Quad Cities, Inc. ("LLQC"),
a Delaware corporation and L.L. Gaming Reservations, Inc. ("LLGR") a Nevada
corporation. 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 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; LLCC opened on May 28, 1993 and sold its real property and operating
assets and ceased operations effective February 19, 1998 (see Note 9); LLB began
dockside casino operations on December 13, 1993 in Biloxi, Mississippi; MLI,
which does business as Lady Luck Rhythm & Blues, commenced dockside gaming
operations on June 27, 1994 in Coahoma County, Mississippi, commenced operation
of a 173-room hotel on August 16, 1994, commenced gaming operations of Country
Casino and the Pavilion on May 21, 1996 and acquired and took over operation of
the 120- room Riverbluff Hotel in Helena, Arkansas on July 3, 1996; LLQC 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);
ORD commenced operation of a 240-room hotel on August 24, 1994, contributed it
to the Bally's Joint Venture in March 1995 and sold its equity investment to
Bally's effective September 30, 1997 (see Note 4); and, LLGR began operating a
central reservations center for the Company's hotels September 3, 1996. All of
the other Mississippi Companies and LLK 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.
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.
44
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
3. Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Significant intercompany accounts and transactions have
been eliminated.
(b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Among the
estimates made by management are the evaluations of the fair market value of
Lady Luck Biloxi using discounted cash flows pursuant to SFAS 121, the
recoverability of the carrying values of the land held for development and the
projects under development by LLV and LLK (See Notes 10 and 11).
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less as cash equivalents.
(d) Restricted Cash
Restricted cash consists of amounts held in escrow and cash specifically
restricted to be used in accordance with the terms of the Indenture related to
the 2001 Notes (See Note 4).
(e) Inventories
Inventories are stated at the lower of cost, as determined by the first-in,
first-out method, or market value.
(f) Assets Held for Sale
Assets held for sale include the current book value of assets to be
disposed of subsequent to year end, net of the estimated loss on sale of these
assets. These assets relate to LLCC (See Note 9).
(g) Property and Equipment
Property and equipment are stated at cost. The Company capitalizes interest
on funds dispersed during the active construction and development phases of its
projects. Depreciation and amortization are computed using predominantly the
straight-line method for financial reporting purposes and accelerated methods
for income tax purposes. Estimated useful lives for financial reporting purposes
are as follows:
Land improvements...................................... 15-25 years
Buildings and improvements............................. 15-30 years
Furniture, fixtures and equipment...................... 5-7 years
45
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
When equipment has been fully depreciated, its cost and the related
accumulated depreciation are eliminated from the respective accounts. Gains or
losses arising from dispositions are reported as other income or expense. Costs
of major improvements are capitalized, while costs of normal repairs and
maintenance are charged to expense as incurred.
Substantially all property and equipment is pledged as collateral for
long-term debt. (See Note 5).
(h) Investment in Unconsolidated Affiliates
The Company accounts for its investment in 50% or less owned joint ventures
using the equity method of accounting. Under the equity method, original
investments are recorded at cost and adjusted by the Company's share of
earnings, losses and distributions of these joint ventures. No cash
distributions have been made since inception and management does not anticipate
any will be made during 1998.
(i) Pre-Opening Costs
Pre-opening costs include direct incremental project salaries and other
pre-opening costs incurred during the pre-opening phase of a project.
Pre-opening costs directly related to gaming and hotel operations are
capitalized as incurred and are charged to expense in the period the project's
operations commence.
(j) Development Costs
Development costs represent those costs such as legal and consulting fees,
gaming license applications and options for land acquisitions or leases incurred
for prospective gaming projects. The Company defers such costs for those
projects in jurisdictions in which gaming is legalized and in which the Company
believes that it has a probable chance of obtaining a license and completing the
project; otherwise, the costs are expensed as incurred and are included in
selling, general and administrative expense for all periods presented. These
costs will be capitalized as either pre-opening costs or property and equipment
when the gaming license is received and the project commences construction.
(k) Deferred Financing Fees and Costs
Deferred financing fees and costs incurred relating to the issuance of the
2001 Notes were capitalized and are being amortized to interest expense using
the effective interest method over the term of the 2001 Notes.
(l) Revenue Recognition
Casino revenues represent the net win from gaming activities, which is the
difference between gaming wins and losses.
(m) Advertising
Advertising costs are expensed the first time such advertisement appears.
Total advertising costs (including direct mail marketing) were approximately
$1,737,000, $1,635,000 and $1,201,000 in 1997, 1996 and 1995, respectively.
(n) Income Taxes
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109 "Accounting for Income Taxes." SFAS No. 109 requires
the recognition of deferred tax assets and liabilities for the consequences of
temporary differences between amounts reported for financial reporting and
46
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
income tax purposes. SFAS No. 109 requires recognition of a future tax benefit
of net operating loss carryforwards and certain other temporary differences to
the extent that realization of such benefit is more likely than not; otherwise,
a valuation allowance is applied. Included in the calculation of the Company's
deferred tax assets and liabilities and the provision for income taxes is the
equity in net income of the Bettendorf Joint Venture and the Bally's Joint
Venture at their respective ownership interests.
(o) Net Income (Loss) Per Share
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128 "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 establishes new
accounting standards for the computation and financial statement presentation of
earnings per share data. Basic income per share of common stock is computed
based on the number of weighted-average shares of common stock outstanding
during the period. Diluted income per share of common stock would be
anti-dilutive; thus, there is no difference between the basic and diluted
earnings per share disclosure. Pursuant to SFAS No. 128, all prior period
presentations must be restated. There was no material effect on the earnings per
share calculations as a result of these restatements.
(p) Fair Value of Financial Instruments
The fair value of the Company's financial instruments approximates their
recorded values at December 31, 1997 and 1996, except for the Company's mortgage
notes payable, the fair market values of which, based on quoted market prices,
were approximately $177.0 million and $175.0 million, respectively. The fair
values are not necessarily indicative of the amounts the Company could realize
in a current market exchange.
(q) Long-lived Assets
Long-lived assets, which are not to be disposed of, including property and
equipment, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. Assets are grouped and evaluated for impairment at the lowest level
for which there are identifiable cash flows that are largely independent of the
cash flows of other groups of assets. The Company deems an asset to be impaired
if a projection of undiscounted future operating cash flows directly related to
the asset, including disposal value if any, is less than its carrying amount. If
an asset is determined to be impaired, the loss is measured as the amount by
which the carrying amount of the asset exceeds fair value. Fair value is
measured based on quoted market prices in active markets, if available. If
quoted market prices are not available, the Company measures fair value by
discounting estimated cash flows. Considerable management judgment is necessary
to estimate discounted future cash flows. Accordingly, actual results could vary
significantly from such estimates. During the fourth quarter of 1997, management
determined that the carrying value of LLB's long-lived assets had been impaired
(See Note 11).
(r) Reclassifications
Certain reclassifications have been made to the prior year amounts to
conform to the current year presentation and have no impact on net income.
4. Investment in Unconsolidated Affiliates
The Company's investments in joint ventures with BRDC and Bally's are
accounted for under the equity method and the Company's portion of income or
47
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
loss from the joint ventures is included in Equity in Net Income (Loss) of
Unconsolidated Affiliates in the accompanying Consolidated Statements of
Operations for the years ended December 31, 1997, 1996 and 1995.
Bettendorf Joint Venture
In December 1994, the Company entered into a joint venture (the "Bettendorf
Joint Venture") with BRDC to complete and operate a casino in Bettendorf, Iowa
("Lady Luck Bettendorf"). The joint venture agreement required that the Company
and BRDC each contribute cash to the Bettendorf Joint Venture of $3.0 million in
return for a 50% ownership interest. In addition, BRDC is leasing certain real
property to the Bettendorf Joint Venture at 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 December 31, 1997 of
$20,000,000 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 and the Company's cost of capital at the time. In addition,
the Company has been leasing certain gaming equipment with a cost of $3,705,000
and a carrying value net of accumulated depreciation as of December 31, 1997 of
$712,000 ($1,070,000 less $358,000 reserve for loss on sale of assets) to the
Bettendorf Joint Venture, as discussed below, for approximately $122,000 per
month, its fair market rental value. An agreement has been reached pursuant to
the gaming equipment lease to sell the gaming equipment to the Bettendorf Joint
Venture at its negotiated value as of December 31, 1997. The $358,000 reserve
for loss on sale of assets represents the net book value in excess of negotiated
value as of December 31, 1997. The sale is effective January 1, 1998. The
Company's rental income relating to the gaming vessel lease was $2,266,000,
$2,187,000 and $1,707,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company's rental income relating to the gaming equipment lease
was $1,465,000, $1,649,000 and $833,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
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 with the
replacement of the Old Management Agreements by the Marketing Agreements (see
Note 15), the Company has also been granted the right to manage Lady Luck
Bettendorf with substantially the same terms and fees as the Company's
wholly-owned casinos, less $37,500 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 years ended December
31, 1997 and 1996 as follows (in thousands): December 31, 1997 1996 Lady Luck
Bettendorf management fees, net of $37,500 monthly abatement $ 1,569 $ 1,117
The Bettendorf Joint Venture is currently constructing a $39.5 million
expansion project pursuant to its master-plan (See Note 17).
48
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Summarized balance sheet information for the Bettendorf Joint Venture as of
December 31, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
<S> <C> <C>
Current assets $ 4,758 $ 5,935
Other 732 -
Property and equipment, net 25,459 12,435
Total assets $ 30,949 $ 18,370
Current liabilities $ 12,276 $ 5,492
Long-term liabilities 48 1,107
Members' equity 18,625 11,771
Total liabilities and
members' equity $ 30,949 $ 18,370
</TABLE>
Summarized results of operations for the Bettendorf Joint Venture for each
of the two years ended December 31, 1997 and 1996 and the period from April 21,
1995, commencement of operations, through December 31, 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net revenues $ 71,612 $ 65,202 $ 36,475
Costs and expenses 64,758 59,020 36,886
Net income (loss) $ 6,854 $ 6,182 $ (411)
</TABLE>
The Bettendorf Joint Venture's net loss for 1995 includes pre-opening
expenses of $2.5 million.
A summary of changes in the Company's investment in the Bettendorf Joint
Venture for each of the two years ended December 31, 1997 and 1996 and the
period from April 21, 1995, commencement of operations, through December 31,
1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Beginning investment $ 5,886 $ 2,795 $ -
Contributed capital - - 3,000
Equity in net income (loss)
of unconsolidated affiliate 3,427 3,091 (205)
Ending investment $ 9,313 $ 5,886 $ 2,795
</TABLE>
Included in Retained Earnings is $6,313,000 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
49
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
property (the "Partnership Interest Redemption Agreement"). The sale has
resulted in a loss of $1,912,000 which represents the difference between the
sales price and the net investment in the Bally's Joint Venture and related
assets.
Pursuant to the Partnership Interest Redemption Agreement, on November 3,
1997, the Company received $15,250,000 in cash for its investment in the Bally's
Joint Venture after it received certain regulatory approvals. In accordance with
the Indenture covering the 2001 Notes (the "Indenture"), the Company has 180
days after receiving the $15,250,000 to invest the money in a Related Business
(as defined in the Indenture). If the Company does not make an investment or
does not invest the $15,250,000 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 proceeds that was
not invested in a Related Business. The cash has been invested since it was
received and has accumulated to $15,388,000 as of December 31, 1997.
Accordingly, this cash has been classified as restricted cash as of
December 31, 1997.
Summarized balance sheet information for the Bally's Joint Venture as of
September 30, 1997 (the effective date of the sale of the Company's 35% interest
in the Bally's Joint Venture) and December 31, 1996 is as follows (in
thousands):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
<S> <C> <C>
Current assets $ 11,099 $ 8,630
Property and equipment, net 49,226 51,537
Other assets 868 1,041
Total assets $ 61,193 $ 61,208
Current liabilities $ 6,567 $ 7,279
Long-term liabilities 5,238 6,994
Partners' capital 49,388 46,935
Total liabilities and
partners' capital $ 61,193 $ 61,208
</TABLE>
Summarized results of operations for the Bally's Joint Venture for the nine
months ended September 30, 1997 (the effective date of the sale of the Company's
35% interest in the Bally's Joint Venture), the year ended December 31, 1996 and
the period from formation of the Bally's Joint Venture on March 31, 1995 through
December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net revenues $ 48,836 $ 70,093 $ 6,963
Costs and expenses 45,129 67,976 9,676
Net income (loss) $ 3,707 $ 2,117 $ (2,713)
</TABLE>
Net income (loss) of the Bally's Joint Venture for the year ended December
31, 1996 and the period from formation through December 31, 1995 includes
pre-opening expenses of $3.3 million and $700,000, respectively.
50
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
A summary of changes in the Company's investment in the Bally's Joint
Venture for the nine months ended September 30, 1997 (the effective date of the
sale of the Company's 35% interest in the Bally's Joint Venture), the year ended
December 31, 1996 and the period from formation of the Bally's Joint Venture on
March 31, 1995 through December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Beginning investment $ 15,563 $ 14,824 $ -
Capital contribution - - 15,756
Equity in net income (loss)
of unconsolidated affiliate 1,297 724 (932)
Loss on sale of equity investment (1,912) - -
Other 302 15 -
Proceeds from sale of investment (15,250) - -
Ending investment $ - $ 15,563 $ 14,824
</TABLE>
5. Long-Term Debt
At December 31, 1997 and 1996, long-term debt consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
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 (the "2001
Notes")................................................ $ 173,500 $ 173,500
Note payable to a corporation; monthly payments of
interest only at 10%; principal due July 2001,
collateralized by a deed of trust (See Note 9) 2,750 2,750
Note payable to a corporation; annual payments of
principal of $119 plus accrued interest at 8%;
due June 2003; collateralized by a land deed of
trust.................................................. 714 833
Notes payable to corporations; monthly payments of
principal and interest at rates up to prime plus
7%; due through May 1998 secured by the
equipment.............................................. 1,122 3,589
Mortgage note payable to a corporation; quarterly
payments of principal and interest at prime plus
1 1/2% based on a 20 year amortization; due
April 2006; collateralized by a deed of trust.......... 2,773 2,925
51
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Note payable to a corporation; quarterly payments
of principal and accrued interest at 9%; due
October 1998, collateralized by a deed of trust......... 110 385
Other....................................................... 326 484
181,295 184,466
Less: current portion....................................... (4,481) (3,385)
Total long-term debt.................................... $ 176,814 $ 181,081
</TABLE>
The Indenture, as amended and supplemented, covering 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 2001 Notes bear interest at the rate of 11-7/8% per annum effective
retroactive to 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 the certain amendments and waivers in 1996 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
believes it is in compliance with the Indenture, as amended and supplemented, as
of December 31, 1997 and 1996.
Scheduled maturities of long-term debt for each of the years ending as of
December 31, are as follows (in thousands):
1998............................................ $ 4,481
1999............................................ 283
2000............................................ 277
2001............................................ 173,778
2002............................................ 279
Thereafter...................................... 2,197
Total................................... $ 181,295
6. Mandatory Cumulative Redeemable Preferred Stock
LLGC has authorized 1,800,000 shares of Series A Mandatory Cumulative
Redeemable Preferred Stock. Holders of Series A are entitled to a compounded
cumulative preference dividend each quarter. The current dividend is 11.5% of
the liquidation preference per share per annum, payable or accrued in quarterly
52
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
installments. Dividends of approximately $1,972,000, $1,761,000 and $1,572,000
were accrued on the Series A preferred stock during the years ended December 31,
1997, 1996 and 1995, respectively. The Series A also requires mandatory
redemption on or before December 31, 2013.
7. Stockholders' Equity
Common stock of LLGC consists of 75,000,000 authorized shares. On February
27, 1995, the Company exchanged 2,000,000 shares of its common stock for
$6,500,000 of the 2001 Notes. The Company recognized an extraordinary gain on
such exchange of $2,257,000 for the year ended December 31, 1995, which
represented the difference between the amount of debt exchanged, net of
unamortized issue costs, and the market price of the common stock. Due to
available net operating loss carry forwards, (See Note 12), no income tax
provision was recognized on the extraordinary gain.
8. Promotional Allowances
The retail value of food, beverages and rooms provided on a complimentary
basis to customers without charge are included in gross revenues and then
deducted as promotional allowances. The estimated costs of providing these
promotional allowances are included in casino departmental expenses for the
years ended December 31, 1997, 1996, and 1995, as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Food and beverage................................. $ 9,347 $8,370 $6,201
Hotel and other................................... 906 800 439
Total..................................... $10,253 $9,170 $6,640
</TABLE>
9. Reserve for Loss on Sale of Lady Luck Central City Assets
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 $2.8 million note and the assumption of certain liabilities.
During 1997, the Company recorded a reserve of $7.3 million to write-down the
assets held for sale to fair market value less closing costs, 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. Accordingly, the net
assets of LLCC have been classified as Assets Held for Sale as of December 31,
1997.
10. Project Development Cost Write-Downs
During 1997, the Company wrote down various project development costs
totaling approximately $7.8 million due to changes in regulatory, political and
competitive environments and other factors.
The first write-down related to the Missouri Project. The State of Missouri
investigates applicants at its discretion and there can be no assurance that the
Company's application will be actively reviewed in future periods. In November
1997, the Missouri Supreme Court ruled that several existing Missouri gaming
projects are illegal due to their locations not being upon the Mississippi or
Missouri rivers. In addition, certain current operators in Missouri have been
53
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
experiencing poor operating results. These uncertainties have resulted in the
Company recording a $2.3 million project development write- down in 1997 of the
remaining balance of its pre-opening and other development costs and a $3.0
million write-down of construction in progress for a portion of the partially
completed cruising vessel which, if not used for the Missouri Project, could be
sold or possibly used in a future development project. Nevertheless, management
estimates that the fair value of this partially completed cruising vessel was
approximately 50% of its net book value. These valuations are based upon
assumptions regarding expected future economic, market and gaming regulatory
conditions. Changes in these assumptions could result in further changes in the
estimated net realizable value of the partially completed cruising vessel.
The second write-down was related to the Vicksburg Project. 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 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. The Company does not believe that all of the Conditions will be satisfied
prior to the Termination Date. While the Company does not currently intend to
terminate the Horseshoe Joint Venture Agreement, 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. Additionally, a determination that certain assets
may not be usable in the Vicksburg Project as currently contemplated resulted in
a $2.3 million write-off of construction in progress. 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.
Additionally, the Company had previously planned to construct and operate a
casino in Gulfport, Mississippi (the "Gulfport Project"). However, in 1997 the
Company suspended further development of the Gulfport Project and is not
currently engaged in negotiating either an agreement to sell or develop these
leaseholds. The Company intends to cancel these leases at the earliest date
allowable pursuant to the lease agreements. During 1997, the Company provided a
project development reserve of approximately $162,000 to fully reserve remaining
future minimum lease payments net of estimated sublease rentals for the
remaining LLG leases. Reserves of approximately $350,000 and $600,000 had
previously been provided during 1996 and 1995, respectively.
Lastly, during 1997, the Company provided reserves of approximately $50,000
related to its investment in Lady Luck New Mexico ("LLNM") for a total reserve
related to LLNM, including 1996 and 1995 reserves, of approximately $250,000.
The Company received $200,000 cash during the year for its remaining investment
balance.
11. Asset Impairment Write-Down
The Company evaluated the recoverability of LLB's long-lived assets in 1996
and 1997 due to recurring operating losses based on the criteria established
under Financial Accounting Standards Board Statement No. 121 ("SFAS 121").
During the fourth quarter of 1997, pursuant to SFAS 121, the Company recorded an
impairment write-down to LLB's long-lived assets of $20.7 million. The Company
considered the historical operating results and the significant downturn in the
operating results of LLB since the opening of additional competitive facilities
in its market, principally the opening of Imperial Palace in December 1997. In
performing its review for recoverability, the Company compared the projected
undiscounted future cash flows to the carrying value of LLB's long-lived assets
of $31.5 million as of December 31, 1997. As the net carrying value of
long-lived assets exceeded the estimated undiscounted future cash flows, the
Company was required to recognize an impairment loss and write-down long-lived
assets to their fair market value of $10.8 million. Fair value became the new
cost basis for the impaired assets and previously accumulated depreciation was
54
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
eliminated. As active market quotations were not available, the Company measured
fair value by discounting estimated future cash flows. Considerable management
judgment was necessary to estimate discounted future cash flows. Accordingly,
actual results could vary significantly from such estimates.
12. Income Taxes
The net deferred tax asset (liability) as of December 31, 1997 and 1996,
are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred Tax Asset
Net operating loss carry-forward.......................... $ 20,798 $ 15,480
Excess of tax over book basis of assets due to
write down of assets................................... 14,778 2,161
Unconsolidated affiliates................................. - 605
Deposits.................................................. 525 525
Other..................................................... 1,691 2,059
37,792 20,830
Less: valuation allowance................................ (19,167) (7,055)
Net deferred tax asset.................................... 18,625 13,775
Deferred Tax Liability
Excess of tax depreciation over book...................... (15,896) (11,913)
Unconsolidated affiliates................................ (417) -
Other..................................................... (2,312) (1,862)
Net deferred tax liability................................ (18,625) (13,775)
Net............................................................ $ - $ -
</TABLE>
SFAS No. 109 requires recognition of the future tax benefit of these assets
to the extent realization of such benefits is more likely than not, otherwise, a
valuation allowance is applied. At December 31, 1997 and 1996, the Company
determined that $19,167,000 and $7,055,000 respectively, of tax benefits did not
meet the realization criteria because of the Company's history of operating
results. Accordingly, a valuation allowance was applied to reserve the
applicable deferred tax assets.
55
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
The following summarizes the components of the income tax (provision) for
the years ended December 31, 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current.................................................... $ (49) $ (69) $ (196)
Deferred................................................... - - (205)
Income Tax (Provision).............................. $ (49) $ (69) $ (401)
</TABLE>
Mississippi state income taxes were offset by a tax credit for state gaming
taxes which are based on gross gaming revenues. The credit is the lesser of the
annual total gaming taxes paid or the Mississippi state income tax. Credit
carry-forwards are not permitted and may not be used on a combined company
basis.
A reconciliation of the "expected" income tax (provision) benefit assuming
a 35% federal statutory rate to the income tax provision for the years ended
December 31, 1997, 1996 and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
"Expected" income tax (provision) ........................... $ (2,701) $ (2,173) $ (2,492)
Nondeductible items........................................... (329) (59) (278)
Net operating loss carryforward............................... 2,981 2,163 2,369
Income Tax (Provision)..................................... $ (49) $ (69) $ (401)
</TABLE>
At December 31, 1997 and 1996, the Company had net operating loss
carryforwards available for income tax purposes of approximately $59,000,000 and
$44,000,000, respectively, which expire from 2009 to 2011.
13. Stock Option Plan
Under the 1993 stock option plan (the "Stock Option Plan"), options may be
granted to purchase up to an aggregate of 1,000,000 shares of LLGC's common
stock. All full-time officers and other key executives, as well as outside
directors of LLGC, will be eligible to receive options. Options may be granted
that either are intended to be incentive stock options or non-qualified stock
options for income tax purposes. Each option granted will be exercisable in full
at any time or from time to time as determined by the Compensation Committee,
provided that no option may have a term exceeding ten years.
During the years ended December 31, 1997, 1996 and 1995, 0, 177,000 and
43,000 stock options were granted, respectively, at exercise prices ranging from
$2.50 to $3.12 per share. During 1997, 1996 and 1995, no options expired or were
exercised; 80,000, 10,000 and 252,000 options were canceled, respectively.
The Company accounts for the Stock Option Plan under APB No. 25, under
which no compensation cost has been recognized. Had compensation cost for this
plan been determined consistent with Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123) the Company's
net income and earnings per share would have been reduced to the following pro
forma amounts:
56
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Net income (loss) applicable to common stockholders
as reported......................................... $(38,483) $4,378 $5,146
Pro Forma................................................. $(38,997) $4,054 $5,021
Basic and diluted net income (loss) per share as
reported............................................ $ (1.31) $0.15 $0.18
Pro Forma................................................. $ (1.33) $0.14 $0.17
</TABLE>
Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The options granted to date to various employees and outside directors vest
ratably over 5 years, with an expiration 10 years from the date of issuance.
Option prices were equal to or greater than market value on the date of
issuance, and at December 31, 1997, the weighted-average issue price of the
options was $2.64. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions; risk-free interest rates of 5.4%, 6.5% and 6.5%
for 1997, 1996 and 1995, respectively; expected lives of 5 years for 1997, 1996
and 1995 and expected volatility of 213, 185 and 153 percent for 1997, 1996 and
1995, respectively. There are no expected dividend yields in 1997, 1996 and
1995.
A summary of the status of the stock option plan and weighted average
exercise prices ("WAEP") at December 31, 1997, 1996 and 1995 and changes during
the years then ended is presented in the table below:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
Number of Number of Number of
Shares WAEP Shares WAEP Shares WAEP
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 491 $2.91 324 $3.12 533 $3.12
Granted - - 177 2.53 43 3.12
Forfeited/Canceled (80) 3.04 ( 10) 3.12 (252) 3.12
Outstanding at end of year 411 2.88 491 2.91 324 3.12
Exercisable at year end 175 3.10 121 3.12 118 3.12
Weighted average fair value of options $2.07 $2.02 $1.93
</TABLE>
14. 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
57
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
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.
58
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
15. Related Party Transactions
Effective January 1, 1996, the Company entered into several agreements with
certain entities controlled by Mr. Tompkins, Chairman of the Board and Chief
Executive Officer of the Company. Under a marketing agreement (the "License
Agreement") with International Marco Polo Services, Inc., formerly known as Lady
Luck Casino, Inc. ("IMPSI"), a corporation owned and controlled by Mr. Tompkins,
the Company pays an annual licensing fee with respect to the Lady Luck name and
the mailing list developed by Gemini, Inc. ("Gemini"), a subchapter S
corporation wholly owned by Mr. Tompkins which does business as Lady Luck
Casino/Hotel in Las Vegas, Nevada, to IMPSI. The licensing fee is equal to the
greater of (a) 9% of the Company's EBITDA (calculated as EBITDA of the Company
and all its subsidiaries and joint ventures (multiplied, in the case of the
Bettendorf Joint Venture and the Missouri Project by the interest owned by the
Company), excluding, among other things, all revenues and expenses arising from
any casino or casino/hotel for which the Company is not the operator and which
does not utilize the mailing list or Lady Luck name and excluding revenues from
the lease of equipment owned by the Company to third parties or unconsolidated
entities), and (b) $1,700,000 per year (as adjusted based on the U.S. Consumer
Price Index Urban Annual Percent Change as published by the U.S. Department of
Labor Bureau of Labor and Statistics from year to year (the "Consumer Price
Index"). The Company has agreed to use the Lady Luck name on all existing and
future casinos which it operates. The License Agreement provides that during any
period of default in the payment of principal of or interest on the Company's 11
7/8% First Mortgage Notes due 2001, the Company will not pay (but will accrue on
its books) any licensing fee due to IMPSI. Licensing fees for 1997 and 1996
totaled approximately $2,989,000 and $3,433,000, respectively.
In addition, LLGC: (i) pays Gemini the sum of $300,000 per year as adjusted
based on the Consumer Price Index for corporate office facilities and
certain services with respect to such corporate office facilities, which for
1997 and 1996 totaled approximately $310,000 and $300,000, respectively; (ii)
reimburses a related party of LLGC, wholly-owned by Mr. Tompkins, which performs
marketing services on the Company's behalf, for certain allocated marketing,
payroll, overhead and other costs, which for 1997 and 1996 totaled approximately
$788,000 and $659,000; and, (iii) will no longer receive reimbursement from a
wholly-owned corporation of Mr. Tompkins for the salary and benefits paid to Mr.
Tompkins as Chairman of the Board and Chief Executive Officer of LLGC
(collectively the "Management/License Fee Overhead Costs").
Certain transactions have occurred between the Company and Marco Polo
International Marketing, Inc. ("Marco Polo"), Gemini, Inc. ("Gemini"), and
IMPSI, all companies wholly owned and controlled by Mr. Tompkins. The Company
has incurred, on behalf of IMPSI and Marco Polo in accordance with management
agreements, which were in force prior to January 1, 1996, expenses for certain
individuals' salaries, wages and benefits which were reimbursed by those
entities in the amount of $668,000 for the year ended December 31, 1995. In
addition, the Company incurred $49,000, $7,000 and $30,000 of expenses for the
years ended December 31, 1997, 1996 and 1995, respectively, which were related
to marketing and other expenses and were reimbursed by Gemini.
The Company reimbursed expenses in the amount of $219,000, for the year
ended December 31, 1995, related to direct advertising and marketing costs that
were paid for by Marco Polo. In addition, the Company incurred $40,000 and
$14,000 of expenses related to marketing and other costs which were reimbursed
by Marco Polo for the years ended December 31, 1997 and 1996, respectively. The
Company also reimbursed Gemini for the approximate retail value of rooms, food
and beverage, and other items provided to the Company by Gemini in the amount of
$147,000, $129,000, and $146,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
59
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
16. 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, 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 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 $7.3 million as of March 6, 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 $301,000 as of March 6, 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; however, the Company intends to
continue to defend itself in this matter.
60
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Other Matters
On November 5, 1996, the United States Bankruptcy Court for the Northern
District of Mississippi dismissed a lawsuit which had been brought by Superior
Boat Works, Inc. ("Superior") against LLM on or about September 23, 1993.
Superior had previously done construction work for LLM on its Natchez barge
("Lady Luck Natchez"), as well as some minor preparatory work on one other barge
of the Company. Such proceeding alleged damages of approximately $47,000,000, of
which approximately $3,400,000 was alleged for additional construction work on
Lady Luck Natchez and the remaining amount was alleged for unjust enrichment,
for causing the bankruptcy of Superior and for future work Superior expected to
perform for the Company. Superior has appealed the decision to dismiss the
action. The Company, based in part on the advice of its counsel, believes that
it has meritorious defenses and does not believe that the appeal of the decision
will have a material adverse effect on the Company's financial condition or
results of operations.
During November 1996, LLCC entered into a Memorandum of Understanding (the
"Memorandum") with BWCC, Inc., which does business as Bullwhackers-Central City
("Bullwhackers"). The Memorandum provided for a combination of the respective
companies' gaming establishments which currently operate on adjacent real
property in Central City. As a result of the Memorandum, the parties negotiated
and purportedly executed a definitive Operating Agreement and Lease Agreement in
September 1997. During the fourth quarter of 1997, Bullwhackers refused to honor
such definitive agreements and the Company has commenced suit against
Bullwhackers accordingly.
17. 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 LLG which are cancelable upon six months notice
on the fifth anniversary of the commencement date of such leases and upon six
months notice on any fifth anniversary date thereafter. In addition, LLGC, on
its own or through its operating subsidiaries, has entered into certain options
to either lease or purchase additional property in other states. Most of the
leases are contingent upon regulatory approval of the lease and all leases
contain certain periodic rent adjustments. Rent expense incurred under operating
leases was approximately $7,885,000, $8,934,000 and $8,380,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
Future minimum lease commitments under non-cancelable long-term operating
leases for the years ending December 31, are as follows (in thousands):
1998.............................................. $ 3,216
1999.............................................. 2,518
2000.............................................. 2,461
2001.............................................. 2,181
2002.............................................. 2,181
Thereafter........................................ 31,982
Total................................ $44,539
61
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
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. The 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 December 31,
1997, 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 is required under its current lease to move its casino
barge several hundred feet to another docking facility on land subject to the
existing lease by February 1998. Management is continuing negotiations with the
lessor to allow the casino to remain in its current location. Should such lease
amendment not be available on terms satisfactory to the Company, the cost of
relocating the barge is currently estimated not to exceed $2.0 million.
Development Stage Projects
In addition to its Operating Casinos, the Company has dockside or riverboat
casino projects in various stages of development in Kimmswick, Missouri;
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").
In 1997, LLK and Davis Gaming Company II ("Davis") mutually agreed to
dissolve an agreement of general partnership to form a joint venture to operate
the Missouri Project because the State of Missouri had not issued the project a
gaming license on or prior to May 31, 1997. The Missouri Gaming Commission
selects applicants at its discretion for investigation prior to licensing. LLK
retained the rights to the Kimmswick Site and owns the Missouri Project's
assets.
62
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
The Missouri Project is estimated to cost an additional $93.1 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.
During 1997, the Company continued its efforts towards obtaining a license
for the Missouri Project and provided updated information to the Missouri Gaming
Commission. However, 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
overly 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 fears of 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.
A gaming license was granted to LLV on August 18, 1994 and has subsequently
been renewed. As of December 31, 1997, the Company has invested approximately
$14.4 million in the Vicksburg Project with a net investment remaining of
approximately $8.2 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 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. The
63
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Company does not believe that all of the Conditions will be satisfied prior to
the Termination Date. While the Company does not currently intend to terminate
the Horseshoe Joint Venture Agreement, 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.
An affected landowner on the Big Black River sued the 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.
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 Company had previously, in the pre-development stage, entered into a
management agreement with the Coquitlam Band to develop and manage a gaming
facility to be located on tribal land approximately eight miles from downtown
Vancouver, British Columbia, Canada. This agreement has been mutually
terminated.
The Province of British Columbia (the "Province"), through its Lotteries
Advisory Committee (the "LAC") subsequently sent to interested parties 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. Bingo halls may also be included in the projects. 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. The
Company is negotiating a development agreement with the Tsawwassen First Nation
as host community, and expects to have it completed during the second quarter of
1998. The Company believes that the LAC will make selections of successful
proponents during the second 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 agreements with the Tsawwassen First Nation and Province
of British Columbia can be successfully negotiated or that financing can be
obtained. As of December 31, 1997, the Company has invested approximately
$500,000 of capital in these projects (which was expensed when incurred) and
does not anticipate investing additional material amounts of capital prior to
licensing.
64
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
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.
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 December 31, 1997, the Company's
total indebtedness was approximately $181.3 million and its stockholders'
deficit was approximately $32.2 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.
65
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable
PART III
The Board of Directors of LLGC has established June 3, 1998 as the annual
meeting date of shareholders.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item will be set forth in LLGC's Proxy
Statement for the 1998 Annual Meeting of Shareholders of LLGC, which information
is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be set forth in LLGC's Proxy
Statement for the 1998 Annual Meeting of Shareholders of LLGC, which information
is incorporated by reference herein, excluding the Stock Price Performance Graph
and the Compensation/Stock Option Committee Report on Executive Compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be set forth in LLGC's Proxy
Statement for the 1998 Annual Meeting of Shareholders of LLGC, which information
is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be set forth in LLGC's Proxy
Statement for the 1998 Annual Meeting of Shareholders of LLGC, which information
is incorporated by reference herein.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
Included in Part II of this Report:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations -- for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Mandatory Cumulative Redeemable Preferred
Stock and Stockholders'
Equity (Deficit) -- for the years ended December 31, 1997, 1996
and 1995 Consolidated Statements of Cash Flows -- for the
years ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
66
<PAGE>
(a)(2) Financial Statement Schedules.
Included in Part III of this Report -- Unconsolidated financial statements
Lady Luck Bettendorf, L.C., an unconsolidated 50% or less owned investee
accounted for under the equity method included in Item 14(d):
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations -- for the years ended
December 31, 1997 and 1996 and the period from April 21, 1995
(commencement of operations) to December 31, 1995
Condolidated Statements of Members' Equity (Deficit) -- for the years
ended December 31, 1997 and 1996 and the period from April 21, 1995
(commencement of operations) to December 31, 1995
Consolidated Statements of Cash Flows -- for the years ended
December 31, 1997, 1996 and the period from April 21, 1995
(commencement of operations) to December 31, 1995
Notes to Consolidated Financial Statements
(a)(3) Exhibits.
Exhibit
Number Description of Exhibits
3.1 Certificate of Incorporation of Lady Luck Gaming Corporation, as amended.
Incorporated by reference to Exhibit 3.1 to the Form S-1 Registration
Statement filed by Lady Luck Gaming Corporation under the Securities
Exchange Act (No. 33-63930) (the "Form S-1").
3.2 By-Laws of Lady Luck Gaming Corporation, as amended. Incorporated by
reference to Exhibit 3.2 to the Form S- 1.
4.1 Indenture dated as of February 17, 1994 by and among Lady Luck Gaming
Finance Corporation, the Guarantors named therein and First Trust National
Association (the "Indenture"). Incorporated by reference to Exhibit 4.1 to
the Annual Report on Form 10-K for the fiscal year ended December 31, 1993
by Lady Luck Gaming Corporation (the "Form 10-K").
4.2 Registration Rights Agreement dated as of February 17, 1994 by and among
Lady Luck Gaming Finance Corporation, the Guarantors named therein and the
Purchasers who were signatories thereto. Incorporated by reference to
Exhibit 4.2 to the Form 10-K.
4.3 Pledge Agreement dated as of February 17, 1994 from Lady Luck Gaming
Finance Corporation, as Pledgor to First Trust National Association, as
Trustee. Incorporated by reference to Exhibit 4.4 to the Form 10-K.
4.4 Pledge Agreement dated as of February 17, 1994 from Lady Luck Gaming
Finance Corporation, as Pledgor to First Trust National Association, as
Trustee. Incorporated by reference to Exhibit 4.4 to the Form 10-K.
4.5 Leasehold Deed of Trust, Assignment of Rents and Security Agreement dated
as of February 17, 1994 by and among Lady Luck Gulfport, Inc., as Trustor,
Jim B. Tohill as Trustee, and First Trust National Association, as
Beneficiary. Incorporated by reference to National Exhibit 4.5 to the Form
10-K.
4.6 Leasehold Deed of Trust, Assignment of Rents and Security Agreement dated
as of February 17, 1994 by and among Lady Luck Mississippi, Inc. as
Trustor, Jim B. Tohill, as Trustee, and First Trust National Association,
as Beneficiary. Incorporated by reference to Exhibit 4.6 to the Form 10-K.
67
<PAGE>
4.7 Leasehold Deed of Trust, Assignment of Rents and Security Agreement dated
as of February 17, 1994 by and among Lady Luck Tunica, Inc., as Trustor,
Jim B. Tohill, as Trustee, and First Trust National Association, as
Beneficiary. Incorporated by reference to Exhibit 4.7 to the Form 10-K.
4.8 Leasehold Deed of Trust, Assignment of Rents and Security Agreement dated
as of February 17, 1994 by and among Lady Luck Biloxi, Inc., as Trustor,
Jim B. Tohill, as Trustee, and First Trust National Association, as
Beneficiary. Incorporated by reference to Exhibit 4.8 to the Form 10-K.
4.9 Leasehold Deed of Trust, Assignment of Rents and Security Agreement dated
as of February 17, 1994 by and among Magnolia Lady, Inc., as Trustor, Jim
B. Tohill, as Trustee, and First Trust National Association, as
Beneficiary. Incorporated by reference to Exhibit 4.9 to the Form 10-K.
4.10 Leasehold Deed of Trust, Assignment of Rents and Security Agreement dated
as of February 17, 1994 by and among Gold Coin Incorporated, as Trustor,
Jim B. Tohill, as Trustee, and First Trust National Association, as
Beneficiary. Incorporated by reference to Exhibit 4.10 to the Form 10-K.
4.11 First Preferred Vessel Mortgage on the Whole of the Lady Luck I dated as of
February 17, 1994 from Lady Luck Mississippi, Inc. in favor of First Trust
National Association. Incorporated by reference to Exhibit 4.11 to the Form
10-K.
4.12 First Preferred Fleet Mortgage on the Whole of the Lady Luck Tunica I and
Lady Luck Tunica II dated as of February 17, 1994 from Lady Luck Tunica,
Inc. in favor of First Trust National Association. Incorporated by
reference to Exhibit 4.12 to the Form 10-K.
4.13 First Preferred Vessel Mortgage on the Whole of the Lady Luck Biloxi, Inc.
dated as of February 17, 1994 from Lady Luck Biloxi, Inc. in favor of First
Trust National Association. Incorporated by reference to Exhibit 4.13 to
the Form 10-K.
4.14 Security Agreement dated as of February 17, 1994 by and between Lady Luck
Kimmswick, Inc. and First Trust National Association. Incorporated by
reference to Exhibit 4.14 to the Form 10-K.
4.15 Security Agreement dated as of February 17, 1994 by and between Lady Luck
Vicksburg, Inc. and First Trust National Association. Incorporated by
reference to Exhibit 4.15 to the Form 10-K.
4.16 Deed of Trust, Assignment of Rents and Security Agreement dated as of
February 17, 1994 by and among Gold Coin Incorporated, the Public Trustee
of the County of Gilpin, State of Colorado and First Trust National
Association. Incorporated by reference to Exhibit 4.16 to the Form 10-K.
4.17 Deed of Trust, Assignment of Rents and Security Agreement dated as of
February 17, 1994 by and among Lady Luck Biloxi, Inc., Jim B. Tohill and
First Trust National Association. Incorporated by reference to Exhibit 4.17
to the Form 10-K.
4.18 Deed of Trust, Assignment of Rents and Security agreement dated as of
February 17, 1994 by and among Lady Luck Mississippi, Inc., Jim B. Tohill
and First Trust National Association. Incorporated by reference to Exhibit
4.18 to the Form 10-K.
4.19 Assignment of Option dated as of February 17, 1994 by Lady Luck Gulfport,
Inc. in favor of First Trust National Association. Incorporated by
reference to Exhibit 4.19 to the Form 10-K.
4.20 Assignment of Option dated as of February 17, 1994 by Lady Luck Kimmswick,
Inc. in favor of First Trust National Association. Incorporated by
reference to Exhibit 4.20 to the Form 10-K.
4.21 Assignment of Option dated as of February 17, 1994 by Lady Luck Vicksburg,
Inc. in favor of First Trust National Association. Incorporated by
reference to Exhibit 4.21 to the Form 10-K.
68
<PAGE>
4.22 Stockholders Agreement dated as of April 1, 1993 by and among the Lady Luck
Gaming Corporation, Andrew H. Tompkins and all current stockholders and
warrant holders of Lady Luck Gaming Corporation. Incorporated by reference
to Exhibit 4.14 to the Form S-1.
4.23 Cash Collateral and Disbursement Agreement dated February 17, 1994 among
First Trust National Association. the Company and the Guarantors named
therein. Incorporated by reference to Exhibit 4.18 to the Form 10-K.
4.24 First Amendment to Stockholders Agreement dated as of June 9, 1993, by and
among Andrew H. Tompkins and the Stockholders named therein. Incorporated
by reference to Exhibit 4.24 to the Registration Statement on Form S-4
(Registration No. 33- 91616)(the "Form S-4, No. 91616").
4.25 Second Supplemental Indenture dated as of March 17, 1995 by and among Lady
Luck Gaming Finance Corporation, the Guarantors named therein and First
Trust National Association. Incorporated by reference to Exhibit 4.25 to
the Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1995 by Lady Luck Gaming Corporation.
4.26 Third Supplemental Indenture by and among Lady Luck Gaming Finance
Corporation, Lady Luck Quad Cities, Inc. and First Trust National
Association. Incorporated by reference to Exhibit 4.26 to the Annual Report
on Form 10-K for the fiscal year ended December 31, 1995 by Lady Luck
Gaming Corporation the ("1995 Form 10-K.")
4.27 Fourth Supplemental Indenture by and among Lady Luck Gaming Finance
Corporation, the Guarantors named therein and First Trust National
Association. Incorporated by reference to Exhibit 4.27 to the 1995 Form
10-K.
4.28 Specimen Common Stock Certificate. Incorporated by reference to Exhibit
4.15 to the Form S-1.
4.29 Security Agreement (Lady Luck Gaming Finance Corporation) by and between
Lady Luck Gaming Finance Corporation and First Trust National Association.
Incorporated by reference to Exhibit 4.29 to the 1995 Form 10-K
4.30 Security Agreement (Lady Luck Gaming Corporation) by and between Lady Luck
Gaming Corporation and First Trust National Association. Incorporated by
reference to Exhibit 4.30 to the 1995 Form 10-K
4.31 Pledge Agreement between Lady Luck Quad Cities, Inc. and First Trust
National Association. Incorporated by reference to Exhibit 4.31 to the 1995
Form 10-K
10.1.Lease for parking lot in Biloxi, Mississippi dated May 28, 1993 by and
between John M. Mladnick and Lady Luck Biloxi, Inc. Incorporated by
reference to Exhibit 10.18 to the Form S-1.
10.2 Lease Agreement dated January 12, 1994 by and among Tyrone J. Gollott, Gary
F. Gollott, Thomas H. Gollott and Lady Luck Biloxi, Inc. Incorporated by
reference to Exhibit 10.10 to the Form 10-K.
10.3 Lease Agreement dated January 17, 1994 by and between Michael S. Sinopoli
and Lady Luck Biloxi, Inc. Incorporated by reference to Exhibit 10.11 to
the Form 10-K.
10.4 Lease for Parcel in Biloxi, Mississippi dated July 25, 1993 by and among
Lady Luck Biloxi, Inc. and Joe G., Jackie R. and John Brett Aldrich.
Incorporated by reference to Exhibit 10.12 to the Form S-1.
10.5 Lease for casino site in Tunica, Mississippi, dated March 18, 1993 between
Lady Luck Tunica, Inc. and D.C. Parker and Richard B. Flowers. Incorporated
by reference to Exhibit 10.5 to the Form S-1.
10.6 Lease for casino site in Gulfport, Mississippi dated October 5, 1992
between Lady Luck Gulfport, Inc. and Mississippi Coast Marine Inc.
Incorporated by reference to Exhibit 10.6 to the Form S-1.
69
<PAGE>
10.7 Lease in Gulfport, Mississippi dated October 1, 1993 by and between Coast
Materials Company and Lady Luck Gulfport, Inc. Incorporated by reference to
Exhibit 10.15 to the Form 10-K.
10.8 Agreement to Lease in Gulfport, Mississippi dated September 23, 1993 by and
among Robert C. Fielding, Lady Luck Gulfport, Inc. and Lady Luck Gaming
Corporation. Incorporated by reference to Exhibit 10.16 to the Form 10-K.
10.9 Leases of part of casino site in Natchez, Mississippi dated October 29,
1991 between Lady Luck Mississippi, Inc. and Silver Land, Inc. Incorporated
by reference to Exhibit 10.7 to the Form S-1.
10.10Silver Land, Inc. Amended and Restated Lease Agreement dated December 31,
1992. Incorporated by reference to Exhibit 10.8 to the Form S-1.
10.11Lease for part of casino site in Natchez, Mississippi dated June 30, 1992
by and between Lady Luck Mississippi, Inc. and the City of Natchez and
amendment thereto dated October 27, 1992. Incorporated by reference to
Exhibit 10.9 to the Form S-1.
10.12Lease for part of casino site in Natchez, Mississippi dated June 30, 1992
by and between Lady Luck Mississippi, Inc. and the City of Natchez and
amendment thereto dated October 27, 1992. Incorporated by reference to
Exhibit 10.10 to the Form S-1.
10.13Sublease Contract dated August 13, 1993 by and between Callon Petroleum
Company and Lady Luck Mississippi, Inc. Incorporated by reference to
Exhibit 10.22 to the Form 10-K.
10.14Lease for parking lot in Central City, Colorado dated June 1, 1993 by and
among Gold Coin Incorporated and J. Scott Bradley and Phyllis M. Brown
(Lots 1-12). Incorporated by reference to Exhibit 10.21 to the Form S-4
Registration Statement previously filed under the Securities Exchange Act
(No. 33-65232) (the "Form S-4, No. 65232").
10.15Lease for parking lot in Central City, Colorado dated June 1, 1993 by and
among J. Scott Bradley and Phyllis M. Brown and Gold Coin Incorporated
(Lots 13-21). Incorporated by reference to Exhibit 10.22 to the Form S-4,
No. 65232.
10.16Agreement of Option, Purchase and Sale and Joint Escrow Instructions for
Vicksburg, Mississippi casino site dated May 21, 1993 by and between Lady
Luck Vicksburg, Inc. and Vicksburg Terminal Company, Inc. Incorporated by
reference to Exhibit 10.11 to the Form S-1.
10.17Option to purchase site in Jefferson County, Missouri dated July 8, 1993
by and between Lady Luck Kimmswick, Inc. and Donald J. Branch. Incorporated
by reference to Exhibit 10.17 to the Form S-1.
10.18Lease in Coahoma, Mississippi dated November 30, 1993 (sic) by and among
Roger Allen Johnson, Jr., Charles Bryant Johnson and Magnolia Lady, Inc.
Incorporated by reference to Exhibit 10.28 to the Form 10-K.
10.19Agreement dated March 19, 1994 by and among Lady Luck Gaming Corporation,
Old River Development, Inc. and D.J. Brata. Incorporated by reference to
Exhibit 10.29 to the Form 10-K.
10.20Lady Luck Gaming Corporation Employee Stock Option Plan. Incorporated by
reference to Exhibit 10.31 to the Form 10-K.
10.21Indemnification Agreement dated April 28, 1993 by and among Terry
Christensen, Barry Fink, Kimberly Harrison, Colorado Casino Properties
Investment L.P. and Lady Luck Gaming Corporation. Incorporated by reference
to Exhibit 10.13 to the Form S-1.
70
<PAGE>
10.22$2,300,000 Promissory Note of Gold Coin Incorporated dated April 28, 1993.
Incorporated by reference to Exhibit 10.14 to the Form S-1.
10.23Warrant Agreement dated April 1, 1993. Incorporated by reference to
Exhibit 10.15 to the Form S-1.
10.24Amendment to Agreement dated March 19, 1994 (sic) by and among Lady Luck
Gaming Corporation, Old River Development, Inc. and D.J. Brata.
Incorporated by reference to Exhibit 10.32 to the Form S-4 registration
statement filed under the Securities Exchange Act (No. 33-77184) (the "Form
S-4, No. 77184").
10.25Option Agreement dated April 28, 1994 by and between Seven-Thirty, Inc.
and Lady Luck Scott City. Inc. Incorporated by reference to Exhibit 10.33
to the Form S-4, No. 77184.
10.26Lease dated September 13, 1993 by and between Nancy Harris Holmes, James
S. Williams, Tempe Kyser Adams and Ben C. Adams as Trustee under the Trust
Agreement dated September 9, 1993, as Lessor and D.J. Brata as Lessee.
Incorporated by reference to Exhibit 10.34 to the Quarterly Report of Form
10-Q for the quarter ended June 30, 1994 of Lady Luck Gaming Corporation
(the "June 30, 1994 Form 10-Q.")
10.27Assignment of Lease Agreement dated September 30, 1993 by and between D.J.
Brata, as assignor, and Old River Development, Inc., as assignee.
Incorporated by reference to Exhibit 10.35 to the Form 10-Q for the quarter
ended June 30, 1994.
10.28Modification of Lease Agreement dated February 8, 1994 by and between Old
River Development, Inc., Lady Luck Tunica, Inc. and Nancy Harris Holmes,
James S. Williams, Tempe Kyser Adams and Ben C. Adams, Jr., as Trustee
under the Trust dated September 9, 1993. Incorporated by reference to
Exhibit 10.36 to the Form 10-Q for the quarter ended June 30, 1994.
10.29Second Modification of Lease Agreement dated April 7, 1994 by and between
Old River Development, Inc., Lady Luck Gaming Corporation and Nancy Harris
Holmes, James S. Williams, Tempe Kyser Adams and Ben C. Adams, Jr., as
Trustee under the Trust Agreement dated September 9, 1993. Incorporated by
reference to Exhibit 10.37 to the June 30, 1994 Form 10-Q.
10.30Escrow Agreement Concerning Agreement of Option and Purchase and Sale of
Property dated April 21, 1994 by and among Vicksburg Terminal Company, Inc.
and Lady Luck Vicksburg, Inc., including Exhibit A, Agreement of Option,
Purchase and Sale and Joint Escrow Instructions. Incorporated by reference
to Exhibit 10.38 to the June 30, 1994 Form 10-Q.
10.31Agreement dated July 18, 1994 by and among Green Bridge Company, an Iowa
corporation, Bettendorf Riverfront Development Company, L.C., an Iowa
limited liability company, Lady Luck Casino, Inc., a Nevada corporation,
and Lady Luck Gaming Corporation. Incorporated by reference to Exhibit
10.40 to the June 30, 1994 Form 10-Q.
10.32Management Agreement dated August 15, 1994 by and among the Pueblo of
Santa Ana, (the "Pueblo"), a federally recognized Indian Tribe, Santa Ana
Nonprofit Enterprise, an enterprise at the Pueblo, and Lady Luck New
Mexico, Inc., a New Mexico corporation. Incorporated by reference to
Exhibit 10.41 to the Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994 of Lady Luck Gaming Corporation.
10.33Letter Agreement dated October 24, 1994 by and between Alain Uboldi and
Lady Luck Gaming Corporation. Incorporated by reference to Exhibit 10.41 to
the Annual Report on Form 10-K for the fiscal year ended December 31, 1994
by Lady Luck Gaming Corporation (the "1994 Form 10-K").
10.34Letter Agreement dated October 24, 1994 by and between Rory J. Reid and
Lady Luck Gaming Corporation. Incorporated by reference to Exhibit 10.42 to
the 1994 Form 10-K.
71
<PAGE>
10.35Amended and Restated Joint Venture Agreement by and among Old River
Development, Inc., D.J. Brata, Bally's Operator, Inc., a Delaware
corporation, Bally's Tunica, Inc., a Mississippi corporation and Bally's
Olympia Limited Partnership, a Delaware limited partnership dated February
24, 1995. Incorporated by reference to Exhibit 2(a) to the Form 8-K of Lady
Luck Gaming Corporation dated February 28, 1995.
10.36Stock Exchange Agreement dated December 30, 1994 by and between Grace
Brothers, Ltd. an Illinois limited partnership and Lady Luck Gaming
Corporation. Incorporated by reference to Exhibit 10.44 to the 1994 Form
10-K.
10.37Stock Exchange Agreement dated February 17, 1995 by and between Grace
Brothers, Ltd. an Illinois limited partnership and Lady Luck Gaming
Corporation. Incorporated by reference to Exhibit 10.45 to the 1994 Form
10-K.
10.38Real Estate Lease dated January 12, 1995 by and among Greenbridge Company,
an Iowa corporation, Bettendorf Riverfront Development Company, L.C., an
Iowa limited liability company, Lady Luck Bettendorf, L.C., an Iowa limited
liability company and Lady Luck Quad Cities, Inc., a Delaware corporation.
Incorporated by reference to Exhibit 10.46 to the 1994 Form 10-K.
10.39Operating Agreement dated December 2, 1994 by and between Lady Luck Quad
Cities, Inc., a Delaware corporation and Bettendorf Riverfront Development
Company, L.C., an Iowa limited liability company. Incorporated by reference
to Exhibit 10.47 to the 1994 Form 10-K.
10.40Charter Agreement dated December 9, 1994 by and among Lady Luck Gaming
Corporation, Lady Luck Kimmswick, Inc. and Lady Luck Bettendorf, L.C., an
Iowa limited liability company. Incorporated by reference to Exhibit 10.48
to the 1994 Form 10-K.
10.41Memorandum of Intent dated February 22, 1995 by and among C-A
International Associates, a Virginia limited partnership and Lady Luck
Mississippi, Inc. Incorporated by reference to Exhibit 10.50 to the 1994
Form 10-K.
10.42Agreement of General Partnership dated as of November 30, 1995 by and
among Lady Luck Kimmswick, Inc., a Missouri corporation and Davis Gaming
Company II. Incorporated by reference to Exhibit 2 to the Form 8-K of Lady
Luck Gaming Corporation dated December 1, 1995.
10.43Memorandum of Understanding between Lady Luck Biloxi, Inc., Lady Luck
Gaming Corporation and Algernon Blair, Inc. Incorporated by reference to
Exhibit 10.58 to the Form S-4, No. 91616.
10.44Contribution and Sale Agreement dated February 5, 1996 between Lady Luck
Mississippi, Inc. and Holstar, Inc. Incorporated by reference to Exhibit 2
to the Form 8-K of Lady Luck Gaming Corporation dated February 5, 1996.
10.45License Agreement dated as of January 1, 1996 among Lady Luck Casino,
Inc., Lady Luck Gaming Corporation and the other parties listed on the
signature pages thereto. Incorporated by reference to Exhibit 10.45 to the
1995 Form 10-K.
10.46Services Agreement dated as of January 1, 1996 among Lady Luck Gaming
Corporation and Marco Polo International Marketing, Inc. Incorporated by
reference to Exhibit 10.46 to the 1995 Form 10-K.
10.47Office Lease dated as of January 1, 1996 among Lady Luck Gaming
Corporation and Gemini, Inc. Incorporated by reference to Exhibit 10.47 to
the 1995 Form 10-K.
10.48Assignment and Assumption Agreement dated as of January 1, 1996 among Lady
Luck Gaming Corporation and Lady Luck Casinos, Inc. Incorporated by
reference to Exhibit 10.48 to the 1995 Form 10-K.
72
<PAGE>
10.49Contract for the Purchase and Sale of Real Estate and Personal Property
dated as of April 12, 1996 by and between River Park Hotel Group, Inc. and
Lady Luck Mississippi, Inc. Incorporated by reference to Exhibit 10.49 to
the Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 of
Lady Luck Gaming Corporation.
10.50Memorandum of Understanding dated November 1996 between Gold Coin, Inc., a
Delaware corporation and Colorado Gaming, Inc., a Colorado corporation.
10.51Partnership Interest Redemption Agreement dated September 30, 1997 between
Bally's Olympia Limited Partnership, a Delaware limited partnership, and
Old River Development, Inc., a Mississippi corporation.
10.52Commercial Contract to Buy and Sell Real Estate dated February 6, 1998
between Gold Coin, Inc., a Delaware corporation and J.D. Carelli.
10.53Agreement for Purchase and Sale of Business Assets dated February 6, 1998
between Gold Coin, Inc., a Delaware corporation and Stage Stop Gaming Hall,
Inc.
21 Subsidiaries of Lady Luck Gaming Corporation.
27 Financial Data Schedule
(b) Reports on Form 8-K.
Form 8-K dated October 8, 1997 relating to Item 1.
(c) Exhibits.
(d) Financial Statement Schedules
Lady Luck Bettendorf, L.C.
<PAGE>
LADY LUCK BETTENDORF, L.C.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of Lady Luck Bettendorf, L.C.:
We have audited the accompanying consolidated balance sheets of LADY LUCK
BETTENDORF, L.C. (the "Company") (an Iowa limited liability company) as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, changes in members' equity and cash flows for the years then ended
and for the period April 21, 1995 (commencement of operations) to December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LADY LUCK BETTENDORF, L.C. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended and for the period
April 21, 1995 to December 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 25, 1998
<PAGE>
LADY LUCK BETTENDORF, L.C.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $3,839,000 $5,119,000
Accounts receivable, net of allowance for doubtful
accounts of $141,000 and $181,000, respectively 27,000 10,000
Inventories 105,000 125,000
Prepaid expenses and other current assets 787,000 681,000
Total current assets 4,758,000 5,935,000
PROPERTY AND EQUIPMENT:
Buildings 6,335,000 -
Leasehold improvements 4,755,000 4,069,000
Furniture, fixtures and equipment 8,178,000 7,042,000
19,268,000 11,111,000
Less: Accumulated depreciation (3,311,000) (1,822,000)
15,957,000 9,289,000
Construction in progress 9,502,000 3,146,000
Total property and equipment, net 25,459,000 12,435,000
Other Assets 732,000 -
TOTAL ASSETS $30,949,000 $18,370,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
LADY LUCK BETTENDORF, L.C.
CONSOLIDATED BALANCE SHEETS (continued)
AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
LIABILITIES AND MEMBERS' EQUITY: 1997 1996
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $1,262,000 $1,245,000
Current portion of capital lease 91,000 -
Accounts payable 345,000 1,334,000
Accounts payable - affiliates 707,000 210,000
Construction and retention payables 3,102,000 -
Accrued gaming taxes 723,000 610,000
Accrued progressive & slot club liabilities 694,000 590,000
Other accrued liabilities 2,023,000 1,503,000
Total current liabilities 8,947,000 5,492,000
Long-term capital lease, less current portion 48,000 -
Tax incremental financing payable 3,329,000 -
Long-term debt, less current portion - 1,107,000
Total Liabilities 12,324,000 6,599,000
Members' Equity 18,625,000 11,771,000
TOTAL LIABILITIES AND MEMBERS' EQUITY $30,949,000 $18,370,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
LADY LUCK BETTENDORF, L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND FOR THE PERIOD APRIL 21, 1995
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
REVENUES:
Casino $69,338,000 $62,202,000 $34,807,000
Food and beverage 5,470,000 5,680,000 2,933,000
Other 883,000 664,000 385,000
Gross revenues 75,691,000 68,546,000 38,125,000
Less: Promotional allowances (4,079,000) (3,344,000) (1,650,000)
Net revenues 71,612,000 65,202,000 36,475,000
COSTS AND EXPENSES:
Casino 18,343,000 16,080,000 9,057,000
Food and beverage 1,537,000 2,413,000 1,572,000
Gaming and admission taxes 18,023,000 15,731,000 8,477,000
Management fees - affiliates 1,569,000 1,117,000 782,000
Marine operations 2,372,000 2,340,000 1,515,000
Selling, general and administrative 15,145,000 12,766,000 7,688,000
Rental expense - affiliates 5,819,000 6,222,000 3,881,000
Other expenses 519,000 945,000 437,000
Depreciation 1,489,000 1,156,000 676,000
Pre-opening expenses - - 2,467,000
Total costs and expenses 64,816,000 58,770,000 36,552,000
Operating income(loss) 6,796,000 6,432,000 (77,000)
Interest income 139,000 51,000 34,000
Interest expense (81,000) (301,000) (368,000)
NET INCOME(LOSS) $ 6,854,000 $ 6,182,000 $ (411,000)
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
LADY LUCK BETTENDORF, L.C.
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND FOR THE PERIOD APRIL 21, 1995
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Bettendorf
Riverfront
Lady Luck Development
Quad Cities, Inc. Company, L.C. Total
<S> <C> <C> <C>
Contributed capital $3,000,000 $3,000,000 $ 6,000,000
Net Loss (205,000) (206,000) (411,000)
Balance at December 31, 1995 2,795,000 2,794,000 5,589,000
Net Income 3,091,000 3,091,000 6,182,000
Balance at December 31, 1996 $5,886,000 $5,885,000 $11,771,000
Net Income 3,427,000 3,427,000 6,854,000
Balance at December 31, 1997 $9,313,000 $9,312,000 $18,625,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
LADY LUCK BETTENDORF, L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND FOR THE PERIOD APRIL 21, 1995
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $6,854,000 $6,182,000 $ (411,000)
Adjustments to reconcile net income(loss) to net cash
provided by operating activities:
Depreciation 1,489,000 1,156,000 676,000
Pre-opening expenses - - 2,467,000
(Increase) decrease in operating assets:
Accounts receivable, net (17,000) 96,000 (106,000)
Inventories 20,000 (50,000) (75,000)
Prepaid expenses and other current assets (106,000) (289,000) (392,000)
Increase (decrease) in operating liabilities:
Accounts payable (including affiliates) (492,000) 562,000 982,000
Accrued gaming taxes 113,000 76,000 534,000
Accrued gaming liabilities 104,000 155,000 656,000
Other current liabilities 520,000 (322,000) 1,604,000
Net cash provided by operating activities 8,485,000 7,566,000 5,935,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions (7,979,000) (1,362,000) (5,049,000)
Construction in progress (6,356,000) (727,000) (2,419,000)
Increase in retention payable and construction payable 3,102,000 - -
Pre-opening costs - - (2,467,000)
Other assets (732,000) - -
Net cash used in investing activities (11,965,000) (2,089,000) (9,935,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from borrowings 564,000 645,000 2,833,000
Payments on debt (1,693,000) (3,572,000) (2,264,000)
Proceeds from tax incremental financing 3,329,000 - -
Proceeds from contributed capital - - 6,000,000
Net cash provided by (used in) financing activities 2,200,000 (2,927,000) 6,569,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
LADY LUCK BETTENDORF, L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND FOR THE PERIOD APRIL 21, 1995
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
NET INCREASE IN CASH AND CASH (1,280,000) 2,550,000 2,569,000
EQUIVALENTS
CASH AND CASH EQUIVALENTS:
Beginning of period 5,119,000 2,569,000 -
End of period $ 3,839,000 $5,119,000 $2,569,000
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest net of amounts capitalized of
$114,000, $100,000 and $50,000 for 1997, 1996 and
1995, respectively. $ 81,000 $ 301,000 $ 368,000
</TABLE>
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The Company entered into several contracts with manufacturers for the purchase
of slot machines which totaled approximately $177,000, $67,000 and $4,643,000
for the years ended December 31, 1997, 1996 and the period ended December 31,
1995.
During 1996, approximately $2,556,000 of long-term debt was refinanced at more
favorable terms to the Company.
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
LADY LUCK BETTENDORF, L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. THE COMPANY AND BASIS OF PRESENTATION
Bettendorf Riverfront Development Company, L.C. ("BRDC") and Lady Luck Quad
Cities, Inc. ("LLQC") formed an Iowa limited liability company, Lady Luck
Bettendorf, L.C. (the "Company") for the purpose of operating a riverboat casino
on the Mississippi River based in Bettendorf, Iowa. On October 21, 1997, Lady
Luck Bettendorf Marina Corporation ("LLBMC"), a wholly owned subsidiary of the
Company, was created for the purpose of owning the marina and parking garage.
Under the terms of the Articles of Incorporation, the Company's term will expire
in 2065. BRDC and LLQC each contributed $3.0 million for a 50% ownership
interest in the Company. All net profits and losses from all operations of the
Company are allocated equally between LLQC and BRDC. BRDC and LLQC are each
represented by two managers with most management decisions of the Company
requiring the approval of both members.
The Company commenced operations on April 21, 1995. The Company is located
on a leased parcel of land which is adjacent to Interstate 74 on the Mississippi
River. The Company's operation consists of a 30,000 square foot casino on a
gaming vessel, which is approximately 300 feet by 100 feet, an entertainment
area for parties, shows, and special events and, as of December 31, 1997, a
gaming area with approximately 44 table and card games and 948 slot machines.
The vessel has gaming operations on three floors. The first floor has a 19th
Century Iowa River theme, the second floor has a sports theme (including a 300
seat showroom) and the poker room is on the third floor. The vessel is certified
for 2,500 passengers including crew. Other related facilities include a
restaurant, gift shop, commercial center, sports bar and showroom and a 500
space parking garage. The Company's market is concentrated in a radius of 50
miles of the Quad City Area and the Chicago area serviced by ongoing bus
programs.
The Company is currently constructing a $39.5 million expansion project
pursuant to its master plan. During the current year, the Company secured
financing for $30 million to build a 260 room hotel, a 500 car parking garage,
an overpass that would allow vehicles to cross over active railroad tracks and a
30-50 slip marina. Financing for this project has been obtained through a
$17,500,000 mortgage with the Rock Island Bank, N.A. signed on June 23, 1997, a
second mortgage with Cement Transportation Corporation for $5,000,000 signed on
June 23, 1997 and a development agreement with the City of Bettendorf to secure
$7,500,000 of tax incremental financing signed on June 17, 1997. The balance of
the expansion project is to be paid from the Company's cash on hand. It is
anticipated that the project will be completed in Fall 1998.
As of December 31, 1997 no funds have been drawn down from either of the
mortgages however, $3,329,000 has been funded by the City of Bettendorf through
the development agreement. The construction of the parking garage was completed
during the year and was opened to the public on November 26, 1997.
<PAGE>
AGREEMENTS
City of Bettendorf "Development Agreement dated August 16, 1994"
The Company entered into an agreement with the City of Bettendorf, a
municipal corporation of the State of Iowa, for the purpose of developing a
gaming operation in the City of Bettendorf. In return for certain conditions,
the City of Bettendorf endorsed and supported the Company in obtaining an Iowa
gaming license. The Company is in compliance with the conditions of the
agreement as follows:
a. The Company obtained an Iowa gaming license effective April 1, 1995 and
began operations on April 21, 1995.
b. The Company was to use commercially reasonable efforts to facilitate
completion of the existing shopping center improvements so that the commercial
center would be opened for business on or before September 1, 1996 (See Note 8).
The commercial center was opened in October 1995 for the holiday season and is
expected to be utilized as part of the hotel project discussed above.
c. The Company is to pay a development fee to the City of Bettendorf of 2%
on adjusted gross receipts exceeding $35,000,000 but not to exceed $44,000,000
during any twelve month period starting on the day gaming operations began,
April 21, 1995. The maximum revenues subject to the 2% fee would be $9,000,000
resulting in maximum fees of $180,000. The Company has accrued fees of $165,000
and $180,000 as of December 31, 1997 and 1996, respectively.
City of Bettendorf "Development Agreement dated June 17, 1997"
The Company entered into an agreement with the City of Bettendorf, a
municipal corporation of the State of Iowa, for the purpose of redeveloping a
portion (24.6 acres) of the former J.I. Case property and immediate berth area
around the Lady Luck boat as a joint project to be known as "The Bettendorf
Downtown Riverfront Project".
This project will include the construction of a 260 room waterfront hotel,
a railroad overpass for vehicular access, a downtown riverfront parking center
for 500 cars, improved area for public parking and marina and seasonal transient
docking facilities. Management of the project will remain with the Company. As
part of this agreement, the city will issue $7.5 million in tax incremental
financing bonds or notes to help in the financing of the overpass, parking
garage, marina and related site improvements. For the life of the bonds issued
by the city, to enable financing of the city's obligations, the Company will pay
incremental property taxes on the developed property assessed at a valuation of
an amount of not less than $32 million. In the event that the taxes generated by
the project do not fund the payment of the debt described, then the Company will
pay the city an additional $0.25 per person for each person entering the boat.
The city agreed to accept conveyance of the overpass from Lady Luck upon its
completion. The cost of the overpass, parking garage and marina is not expected
to exceed the financing from the City of Bettendorf.
In the event that the construction of the marina is not completed before
April 1, 1999 following completion of the hotel, the Company will pay the City
$100,000 per month until the project has been completed. Pursuant to the
Development Agreement, the parking center and marina improvements were
transferred to LLBMC. The Board of Directors of LLBMC is comprised of the
managers of the Company.
<PAGE>
As part of the agreement, the Company is also responsible for demolishing
the Plaza building at 1823 State Street and preparing the site for donation back
to the City. The Company is also responsible for paying to the City up to 50% of
damages which may be awarded to certain businesses disrupted by this project.
The Company does not expect its portion of the damages to exceed $150,000.
Riverbend Regional Authority "Operator's Contract"
The Company entered into an agreement with the Riverbend Regional
Authority, an Iowa not-for- profit corporation (the "RRA") and the holder of the
Iowa gaming license, to operate a gaming boat. The Company is in compliance with
the conditions of the agreement as follows:
a. The Company has obtained and is operating a riverboat gaming facility
with a minimum capacity of 900 gaming positions.
b. The Company is to pay RRA $1.00 for each of the first 500,000 admissions
and $1.50 for each admission in excess thereof computed on an annual basis
commencing on the date gaming operations began, April 21, 1995. These admission
fees are paid weekly.
c. If the adjusted gross gaming receipts exceed $44,000,000 during any
twelve month period starting on the day gaming operations began, the Company is
required to pay to RRA 2% of any such excess. The Company exceeded this level on
or about April 15, 1997 and began to make these additional contributions weekly.
The Company will pay these contributions weekly until April 20, 1998 (the end of
the RRA fiscal year for this purpose) and has expensed these contributions
evenly throughout the year.
d. The Company has executed a "Development Agreement" with the City of
Bettendorf as required by this agreement.
Lady Luck Casino, Inc. "Casino Management Agreement"
The Company entered into an agreement with Andrew H. Tompkins and Lady Luck
Casino, Inc. ("LLCI"), a Nevada corporation, to manage the operations of the
Company. In May 1996, Lady Luck Gaming Corporation ("LLGC") (the "Management
Company"), a Delaware corporation, replaced LLCI as the manager of the casino.
Andrew H. Tompkins, LLCI and LLGC are all affiliates of the Company. The
Management Company is to supervise and control the Company's operations, provide
marketing and accounting services, allow the use of the Lady Luck name in
connection with the operations and access to the customer list. Cash payments
made by the Company to LLCI, LLGC and their affiliates for services provided to
the Company or payments made on behalf of the Company for insurance, marketing
and advertising production, medical and other insurance, 401(k) plan
contributions and other items totaled approximately $2,328,000, $1,885,000 and
$998,000 for the years and period ended December 31, 1997, 1996 and 1995,
respectively, excluding management fees and rental expenses paid to these
related parties. The Management Company believes that all expenses and costs
applicable to the Company are reflected in the accompanying financial statements
on a basis which is representative of what they would have been if the Company
operated on a stand-alone basis. Highlights of the agreement are as follows:
a. Term - The term of the "Casino Management Agreement" is from September
30, 1994 to September 30, 2033.
<PAGE>
b. Management Fee - A management fee of 2% of gaming gross revenues (as
defined) plus 7% of earnings before income tax, depreciation and amortization
(as defined), together not to exceed 4% of the annual casino gross revenue (as
defined), will be paid to the Management Company. Effective in June 1996, the
management fee was reduced by $37,500 per month. The management fees incurred
during the periods ended December 31, 1997, 1996 and 1995 were approximately
$1,569,000, $1,117,000 and $782,000, respectively. The outstanding and unpaid
management fees at December 31, 1997 and 1996, were approximately $81,000 and
$70,000, respectively. BRDC will provide consulting services concerning
licensing, staffing, and management of the marine aspects of the gaming vessel
and any land based development. The Management Company is to pay part of its
fee, up to $325,000 annually, to BRDC for these consulting services.
c. Working Capital Reserve - The agreement requires that $500,000 be
maintained in a casino bank account (as defined) as working capital for all
financial needs of the casino. At December 31, 1997 and 1996, the casino bank
account had a book balance of approximately $656,000 and $2,400,000,
respectively.
d. Maintenance Capital Improvements and Furniture, Fixtures and Equipment
"Replacement Reserve Account" - The Management Company is required to reserve a
percentage of casino gross revenues (as defined) each year (the "Replacement
Reserve Account") to pay the cost of additions to and replacements of furniture,
fixtures and equipment, and to provide for capital improvements as follows:
- 1st operating year 1.5%
- 2nd operating year 2.5%
- 3rd operating year 3.0%
- 4th operating year 4.0%
- 5th operating year and each year thereafter 5.0%
Although funds have not been segregated into a replacement account, this
requirement has been constructively met. The Company has made and paid for
replacements and capital improvements from the casino bank account, in excess of
the approximately $2,080,000 and $1,555,000 that should have been funded as of
December 31, 1997 and 1996, respectively.
2. CERTAIN RISKS AND UNCERTAINTIES
The Company's operations are dependent on the continued licensing or
qualification of the Company. Such licensing and qualification are reviewed
periodically by the gaming authorities in this state.
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary. Significant
intercompany accounts and transactions have been eliminated.
b. Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
c. Cash and Cash Equivalents - The Company considers all highly liquid
investments purchased with original maturity of three months or less as cash
equivalents. The carrying amount of cash and cash equivalents approximates its
fair value.
d. Inventories - Inventories are stated at the lower of cost, as determined
by the first-in, first-out method, or market value.
e. Property and Equipment - Property and equipment are stated at cost.
Included in the cost of the commercial center, hotel and parking garage is
interest incurred during the construction period of approximately $114,000 and
$100,000 incurred in 1997 and 1996, respectively. Depreciation is computed using
predominantly the straight-line method. Estimated useful lives for financial
reporting purposes are as follows:
Buildings 40 years
Leasehold improvements 15-20 years
Furniture, fixtures and equipment 5-7 years
Costs of major improvements are capitalized, while costs of normal repairs
and maintenance are charged to expense as incurred. Portions of property,
furniture, fixtures and equipment are pledged as collateral for long-term debt
(See Note 5).
f. Revenue Recognition - In accordance with gaming industry practice, the
Company recognizes as casino revenues the net win from gaming activities, which
is the difference between gaming wins and losses. Casino revenues are net of
accruals for anticipated payouts of progressive slot jackpots and certain table
games. Such anticipated jackpot payments are reflected as current liabilities in
the accompanying balance sheets. Revenues from food, beverage, entertainment and
the gift shop are recognized at the time the related service or sale is
performed/made.
g. Promotional Allowances - The retail value of food, beverage and other
items provided on a complimentary basis to customers without charge are included
in gross revenues and then deducted as promotional allowances. The estimated
cost of providing these promotional allowances are included in casino
departmental expenses for the years ended December 31, 1997, 1996 and 1995 as
follows:
<PAGE>
1997 1996 1995
Food and Beverage $3,392,000 $2,981,000 $1,693,000
Entertainment 545,000 415,000 -
Gift Shop 48,000 50,000 45,000
Total $3,985,000 $3,446,000 $1,738,000
h. Mad Money Estimates - The Company provides slot patrons incentives based
on the dollar amount of play on slot machines. An accrual has been established
based of an estimate on the outstanding value, utilizing the age and prior
history of redemptions. This amount is reflected as a current liability on the
accompanying balance sheets.
i. Advertising - Advertising costs are expensed the first time such
advertisement appears. Total advertising costs (including direct mail marketing)
were approximately $1,497,000, $1,399,000 and $1,050,000 in 1997, 1996 and 1995,
respectively.
j. Pre-Opening Costs - Pre-opening costs include direct incremental project
salaries and other pre-opening costs incurred during the pre-opening phase of
projects. Pre-opening costs directly related to construction of projects were
capitalized as incurred and were charged to expense in the period each project
commenced operations.
k. Income Taxes - No provision for U.S. Federal income taxes or state
income taxes is recorded in the financial statements as such liability is the
responsibility of the members.
l. Reclassifications - Certain prior year balances have been reclassified
to conform to current year presentation and have no impact on net income.
4. PROPERTY AND EQUIPMENT
Building consists of the following as of December 31, 1997:
Parking Garage $ 2,969,000
Commercial Center 2,994,000
Plaza Building 372,000
Total: $ 6,335,000
Included in Construction in Progress are costs of $9,210,000 associated
with the 260 room hotel under construction as of December 31, 1997.
<PAGE>
5. DEBT
At December 31, 1997 and 1996, long-term debt consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
a. Northwest Bank and Trust Co. - Interest of
9.25%; principal payment of $100,000 per
month plus interest; due on demand not
earlier than February 1998 and no later than
October, 1998; collateralized by gaming
equipment and guaranteed up to $1,600,000
in 1996 and $1,100,000 in 1997 by affiliates
of BRDC. $ 1,100,000 $ 2,300,000
b. Sigma Note - Imputed interest of 8%;
payment of $3,716 per month; for eighteen
months; due in March 1998; collateralized by
gaming equipment. 11,000 52,000
c. Rock Island Bank Loan - Imputed interest of
9.25%, payment of $17,806 per month; for
19 months; due in October 1998;
collateralized by certain business
improvements. 151,000 -
1,262,000 2,352,000
Less: current portion ( 1,262,000) (1,245,000)
Total long-term debt $ - $ 1,107,000
</TABLE>
The Company entered into a first mortgage agreement with Rock Island Bank,
N.A. for a loan of $17,500,000 on June 23, 1997. Security has been provided
through a pledge of the expansion project's assets; including a first mortgage
on the hotel, parking garage, retail center and auxiliary dockside facilities, a
collateral assignment of the land lease and a pledge of net revenues from
ongoing operations. The loan will be for the period of ten years after the date
of the hotel opening. The loan will be interest bearing at 350 basis points over
the five-year treasury rate. At December 31, 1997 no debt had been drawn down on
this facility.
The Company has also entered into a second mortgage agreement on May 27,
1997 with Cement Transportation Corporation ("CTC"), a related party, in the
amount of $5,000,000. Security has been provided through the second mortgage on
the future hotel, dockside facilities and retail space. The loan will be for the
period of five years. The loan will be interest bearing at a rate of 12% over
the life of the loan. The agreement requires the Company to pay a minimum of 45%
of its net earnings (as defined) annually until the loan is repaid. In addition,
pursuant to the agreement, no distributions can be made to the members, other
than those payments to CTC to pay off this loan until such time as the CTC loan
is paid in full. The first mortgage agreement with Rock Island Bank also
prevents greater than 45% of net earnings to be made in any one year in respect
to the second mortgage. At December 31, 1997 no debt had been drawn down on this
facility.
<PAGE>
6. CAPITAL LEASES
In July 1997, the Company entered into a two-year capital lease agreement
to purchase certain gaming equipment with a fair market value of $130,000 at an
interest rate of 8%. In October 1997, the Company entered into a two-year lease
agreement to purchase certain operating equipment with a fair market value of
$48,000 at an interest rate of 8%. The future lease payments under the lease,
together with the present value of the lease payments, consisted of the
following at December 31, 1997:
1998 $ 96,000
1999 53,000
Thereafter -
Minimum lease payments 149,000
Less amounts representing
interest (10,000)
$139,000
7. OTHER ACCRUED LIABILITIES
Accrued liabilities consist of the following as of December 31,:
1997 1996
Accrued salaries, vacation and bonuses $ 717,000 $ 481,000
Accrued management fee - affiliates 81,000 70,000
Accrued advertising - affiliate 109,000 -
Accrued property taxes 269,000 479,000
Token and chip liability 199,000 221,000
Other 648,000 252,000
Total accrued liabilities $2,023,000 $ 1,503,000
8. RELATED PARTY TRANSACTIONS
The Company purchased property from a related party as follows:
In order to complete the obligations of the Development Agreement dated
June 17, 1997 with the City of Bettendorf, the Company purchased the Plaza
Building located at 1823 State Street from Green Bridge Company, a related
party, for $372,000. These premises will be demolished at an estimated cost of
$180,000 including environmental remediation before December 31, 1999.
The Company entered into a loan facility with a related party as follows:
<PAGE>
The Company entered into a second mortgage agreement on May 27, 1997 with
"Cement Transportation Corporation" a related party, for a loan of $5,000,000.
Security has been provided through the future hotel, dockside facilities, and
retail facility. The loan will be for the period of five years after the date of
the hotel opening. The loan will be interest bearing at 12% over the life of the
loan (see Note 5).
The Company has entered into long-term operating leases with related
parties. They are as follows:
a. Land - The Company has entered into a long-term operating lease
agreement with BRDC. The lease is for an initial term of 10 years, expiring May
2005, with nine 10 year options. The parties have set the lease payment at
$150,000 per month, based on a negotiated value. The Company has an option to
purchase the land during the initial term of the lease for its appraised fair
market value.
b. Boat - The Company has entered into a long-term operating lease, a
charter hire lease, with LLGC and Lady Luck Kimmswick, Inc., a Missouri
corporation. This lease is for an initial term of 5 years with a 10 year renewal
option. The lease payment is $189,000 per month, before use tax. The Company has
an option to purchase the Boat during the initial term of lease for its
appraised fair market value.
c. Equipment - The Company has entered into a long-term operating lease
with Lady Luck Gaming Finance Corporation to lease equipment. The lease is for
an initial term of 36 months, expiring April 1998, with two 1 year renewal
options. Effective January 1, 1998, the Company exercised its option to purchase
this equipment prior to the expiration of the lease for approximately $712,000,
the fair market value as of December 31, 1997. The lease payment of $122,000 per
month was modified in June, 1996 via a written agreement between the parties.
Previously, the Company had been paying $100,000 per month.
9. COMMERCIAL CENTER DEVELOPMENT
In October 1995, the Company completed construction of a 90,000 square foot
center. The retail center will open for operations upon completion of the hotel
facilities. The Company's plans for the center include retail, restaurant, and
banquet facilities in connection with the development of the full-service hotel,
on the site adjacent to the center. As the Company executes these plans,
additional tenant and other construction costs will be incurred, the amount of
which depends on the specific plan. Management intends to fund these costs from
operations.
10. LITIGATION
The Company is party to various litigation arising in the normal course of
business. Management is of the opinion that ultimate resolution of these matters
will not have a material effect on the financial position or the results of
operations of the Company.
<PAGE>
11. COMMITMENTS AND CONTINGENCIES
Lease Commitments - Future minimum lease payments for the land, boat and
gaming equipment required under operating leases that have non-cancelable lease
terms in excess of one year as of December 31, 1997, are as follows:
1998 4,391,000
1999 4,265,000
2000 4,224,000
2001 4,202,000
2002 4,202,000
Thereafter 74,564,000
Total $95,848,000
Management intends to renew the boat lease for an additional 10 years and
the land lease for an additional 30 years, these renewal options have been
assumed in the above disclosure.
12. SUBSEQUENT EVENTS
a. Effective January 1, 1998, the Company entered into an agreement with
Lady Luck Gaming Finance Corporation to purchase equipment that had previously
been leased under an operating lease. The purchase price was based on the fair
market value of the equipment, which was approximately $712,000 at December 31,
1997.
b. On January 26, 1998 the Company drew down $1,250,000 from its second
mortgage agreement with Cement Transportation Corporation.
c. On February 2, 1998 and February 13, 1998, the Company received $45,000
and $215,000, respectively in relation to additional tax incremental financing
from the city.
d. On February 20, 1998, the Company drew down $1,870,000 from its first
mortgage agreement with the Rock Island Bank.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LADY LUCK GAMING CORPORATION
By /s/ Andrew H. Tompkins
Andrew H. Tompkins
(Chairman of the Board and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
/s/ Andrew H. Tompkins March 30, 1998
Andrew H. Tompkins
(Chairman of the Board, Principal Executive Officer
and Director)
/s/ Alain Uboldi March 30, 1998
Alain Uboldi
(President, Chief Operating Officer
and Director)
/s/ Lawrence P. Tombari March 30, 1998
Lawrence P. Tombari
(Senior Vice President, Chief Financial Officer
and Principal Financial Officer)
/s/ James D. Bowen March 30, 1998
James D. Bowen
(Vice President Finance
and Principal Accounting Officer)
/s/ Rory J. Reid March 30, 1998
Rory J. Reid
(Senior Vice President, General Counsel,
Secretary and Director)
/s/ Minxin Pei March 30, 1998
Minxin Pei
(Director)
/s/ Anthony J. Drexel Biddle III March 30, 1998
Anthony J. Drexel Biddle III
(Director)
/s/ James A. Bilbray March 30, 1998
James A. Bilbray
(Director)
/s/ Charles Brewer March 30, 1998
Charles Brewer
(Director)
THIS FORM HAS IMPORTANT LEGAL CONSEQUENCES AND THE PARTIES SHOULD CONSULT
LEGAL AND TAX OR OTHER COUNSEL BEFORE SIGNING.
COMMERCIAL
CONTRACT TO BUY AND SELL REAL ESTATE
February 6 , 1998
--------------------------------
1. PARTIES AND PROPERTY. J.D. CARELLI , buyer(s) [Buyer], (as joint
tenants/tenants in common) agrees to buy, and the undersigned seller(s)
[Seller], agrees to sell,on the terms and conditions set forth in this contract,
the following described real estate in the County of Gilpin , Colorado, to wit:
Lots Six, Seven, Eighteen, Nineteen, Twenty, Twenty-one, and part of Lot Eight
and Part of Dostal Alley, in Block Three in the City of Central, more
particularly described as follows:
Beginning at the Southwest corner of Lot Eighteen in said Block Three, a spike
nail driven at the end and in the center of a stone wall, which is a mutual
boundary between Lots 17 and 18 in said Block 3, whence the Southwest corner of
the building upon said Lot 18 bears No. 8'5'54" E., a distance of 2.95 feet;
thence N. 8'5'54" E., a distance of 20.74 feet; thence N. 02'28' E., a distance
of 21.05 feet; thence N. 00'48'W., a distance of 37.51 feet to the center of a
mutual wall; thence along said mutual wall N. 88'18'E., a distance of 62.58 feet
to the West edge of a wall which parallels the East side of Dostal Alley; thence
S. 1'30'E., a distance of 23.00 feet to the south edge of a stone wall; thence
along said South edge of stone wall S. 63'45'E., a distance of 66.00 feet;
thence S. 29'51'W., a distance of 50.00 feet; thence N. 60'09'W., a distance of
29.12 feet; thence N. 89'45'W., a distance of 75.63 feet to the point of
beginning.
known as No. 120 Main Street, Central City, Colorado 80427 , Street Address City
State Zip together with all interest of Seller in vacated streets and alleys
adjacent thereto, all easements and other appurtenances thereto, all
improvements thereon and all attached fixtures thereon, except as herein
excluded (collectively the Property).
2. INCLUSIONS / EXCLUSIONS. The purchase price includes the following items (a)
if attached to the Property on the date of this contract: lighting, heating,
plumbing, ventilating, and air conditioning fixtures, TV antennas, water
softeners, smoke/fire/burglar alarms, security devices, inside telephone wiring
and connecting blocks/jacks, plants, mirrors, floor coverings, intercom systems,
built-in kitchen appliances, sprinkler systems and controls; (b) if on the
Property whether attached or not on the date of this contract: storm windows,
storm doors, window and porch shades, awnings, blinds, screens, curtain rods,
drapery rods, all keys and (c) All items pursuant to the attached AGREEMENT FOR
PURCHASE AND SALE OF BUSINESS ASSETS executed concurrent with this Contract .
The above-described included items (Inclusions) are to be conveyed to Buyer by
Seller by bill of sale at the closing, free and clear of all taxes, liens and
encumbrances, except as provided in Section 12. The following attached fixtures
are excluded from this sale: NONE
3. PURCHASE PRICE AND TERMS. The purchase price shall be $ 2,750,000.00 ,
payable in U.S. dollars by Buyer as follows: (Complete the applicable terms
below.)
(a) EARNEST MONEY. $ N/A in the form of N/A , as earnest money deposit and part
payment of the purchase price, payable to and held by N/A , broker, in its trust
account on behalf of both Seller and Buyer. Broker is authorized to deliver the
earnest money deposit to the closing agent, if any, at or before closing.
The balance of $ 2,750,000.00 (purchase price less earnest money) shall be paid
as follows:
SEE SECTION 21, ADDITIONAL PROVISIONS
(b) CASH AT CLOSING. (OMITTED)
(c) NEW LOAN. (OMITTED)
(d) ASSUMPTION. (OMITTED)
(e) SELLER OR PRIVATE THIRD-PARTY FINANCING. (OMITTED)
4. FINANCING CONDITIONS AND OBLIGATIONS. (OMITTED)
5. APPRAISAL PROVISION. (OMITTED)
6. COST OF APPRAISAL. (OMITTED)
7. NOT ASSIGNABLE. This contract shall not be assignable by Buyer without
Seller's prior written consent. Except as so restricted, this contract shall
inure to the benefit of and be binding upon the heirs, personal representatives,
successors and assigns of the parties.
8. EVIDENCE OF TITLE. Seller shall furnish to Buyer, at Seller's expense, either
a current commitment for owner's title insurance policy in an amount equal to
the purchase price or at Seller's choice, an abstract of title certified to a
current date, on or before FEBRUARY 6, 1998 (Title Deadline). If a title
insurance commitment is furnished, Buyer may require of Seller that copies of
instruments (or abstracts of instruments) listed in the schedule of exceptions
(Exceptions) in the title insurance commitment also be furnished to Buyer at
Seller's expense. This requirement shall pertain only to instruments shown of
record in the office of the clerk and recorder of the designated county or
counties. The title insurance commitment, together with any copies or abstracts
of instruments furnished pursuant to this Section 8, constitute the title
documents (Title Documents). Buyer, or Buyer's designee, must request Seller, in
writing, to furnish copies or abstracts of instruments listed in the schedule of
exceptions no later than calendar days after Title Deadline. If Seller furnishes
a title insurance commitment, Seller will pay the premium at closing and have
the title insurance policy delivered to Buyer as soon as practicable after
closing.
9. TITLE.
(a) TITLE REVIEW. Buyer shall have the right to inspect the Title Documents
or abstract. Written notice by Buyer of unmerchantability of title or of any
other unsatisfactory title condition shown by the Title Documents or abstract
shall be signed by or on behalf of Buyer and given to Seller on or before 5
calendar days after Title Deadline, or within five (5) calendar days after
receipt by Buyer of any Title Document(s) or endorsement(s) adding new
Exception(s) to the title commitment together with a copy of the Title Document
adding new Exception(s) to title. If Seller does not receive Buyer's notice by
the date(s) specified above, Buyer accepts the condition of title as disclosed
by the Title Documents as satisfactory.
(b) MATTERS NOT SHOWN BY THE PUBLIC RECORDS. Seller shall deliver to Buyer,
on or before the Title Deadline set forth in Section 8, true copies of all
lease(s) and survey(s) in Seller's possession pertaining to the Property and
shall disclose to Buyer all easements, liens or other title matters not shown by
the public records of which Seller has actual knowledge. Buyer shall have the
right to inspect the Property to determine if any third party(s) has any right
in the Property not shown by the public records (such as an unrecorded easement,
unrecorded lease, or boundary line discrepancy). Written notice of any
unsatisfactory condition(s) disclosed by Seller or revealed by such inspection
shall be signed by or on behalf of Buyer and given to Seller on or before
FEBRUARY 11 , 19 98 . If Seller does not receive Buyer's notice by said date,
Buyer accepts title subject to such rights, if any, of third parties of which
Buyer has actual knowledge.
(c) SPECIAL TAXING DISTRICTS. Special taxing districts may be subject to
general obligation indebtedness that is paid by revenues produced from annual
tax levies on the taxable property within such districts. Property owners in
such districts may be placed at risk for increased mill levies and excessive tax
burdens to support the servicing of such debt where circumstances arise
resulting in the inability of such a district to discharge such indebtedness
without such an increase in mill levies. buyer should investigate the debt
financing requirements of the authorized general obligation indebtedness of such
districts, existing mill levies of such district servicing such indebtedness,
and the potential for an increase in such mill levies.
In the event the Property is located within a special taxing district and
Buyer desires to terminate this contract as a result, if written notice is given
to Seller on or before the date set forth in subsection 9 (b), this contract
shall then terminate. If Seller does not receive Buyer's notice by the date
specified above, Buyer accepts the effect of the Property's inclusion in such
special taxing district(s) and waives the right to so terminate.
(d) RIGHT TO CURE. If Seller receives notice of unmerchantability of title
or any other unsatisfactory title condition(s) as provided in subsection (a) or
(b) above, Seller shall use reasonable effort to correct said unsatisfactory
title condition(s) prior to the date of closing. If Seller fails to correct said
unsatisfactory title condition(s) on or before the date of closing, this
contract shall then terminate; provided, however, Buyer may, by written notice
received by Seller, on or before closing, waive objection to said unsatisfactory
title condition(s).
10. INSPECTION. Seller agrees to provide Buyer on or before FEBRUARY 6, 1998
with a written enumeration of all material defects of the Property to the best
of Seller's current actual knowledge. Buyer or any designee, shall have the
right to have inspection(s) of the physical condition of the Property and
Inclusions, at Buyer's expense. If written notice of any unsatisfactory
condition, signed by or on behalf of Buyer, is not received by Seller on or
before FEBRUARY 11 , 19 98 (Objection Deadline), the physical condition of the
Property and Inclusions shall be deemed to be satisfactory to Buyer. If such
notice is received by Seller as set forth above, and if Buyer and Seller have
not agreed, in writing, to a settlement thereof on or before FEBRUARY 12 , 19 98
(Resolution Deadline), this contract shall terminate three calendar days
following the Resolution Deadline; unless, within the three calendar days,
Seller receives written notice from Buyer waiving objection to any
unsatisfactory condition. Buyer is responsible for and shall pay for any damage
which occurs to the Property and Inclusions as a result of such inspection.
11. DATE OF CLOSING. The date of closing shall be FEBRUARY 13 , 19 98 , or by
mutual agreement at an earlier date. The hour and place of closing shall be as
designated by BUYER AT CLEAR CREEK-GILPIN COUNTY ABSTRACT CO ("Title Company") .
12. TRANSFER OF TITLE. Subject to tender or payment at closing as required
herein and compliance by Buyer with the other terms and provisions hereof,
Seller shall execute and deliver a good and sufficient SPECIAL WARRANTY deed to
Buyer, on closing, conveying the Property free and clear of all taxes except the
general taxes for the year of closing, and except ONLY THE EXISTING FIRST DEED
OF TRUST, FINANCING STATEMENT FILED IN CONNECTION THEREWITH . Title shall be
conveyed free and clear of all liens for special improvements installed as of
the date of Buyer's signature hereon, whether assessed or not; except (i)
distribution utility easements (including cable TV), (ii) those matters
reflected by the Title Documents accepted by Buyer in accordance with subsection
9(a), (iii) those rights, if any, of third parties in the Property not shown by
the public records in accordance with subsection 9(b), (iv) inclusion of the
Property within any special taxing district, and (v) subject to building and
zoning regulations.
13. PAYMENT OF ENCUMBRANCES. Any encumbrance required to be paid shall be paid
at or before closing from the proceeds of this transaction or from any other
source.
14. CLOSING COSTS, DOCUMENTS AND SERVICES. Buyer and Seller shall pay, in Good
Funds, their respective closing costs and all other items required to be paid at
closing, except as otherwise provided herein. Buyer and Seller shall sign and
complete all customary or required documents at or before closing. Fees for real
estate closing services shall not exceed $ 300.00 and shall be paid at closing
by 1/2 BY SELLER AND 1/2 BY BUYER.
The local transfer tax of N/A % of the purchase price shall be paid at closing
by N/A . Any sales and use tax that may accrue because of this transaction shall
be paid when due by N/A .
15. PRORATIONS. General taxes for the year of closing, based on the taxes for
the calendar year immediately preceding closing, rents, water and sewer charges,
owner's association dues, and interest on continuing loan(s), if any, and ONLY
THOSE SERVICE CONTRACTS ASSUMED IN WRITING BY BUYER shall be prorated to date of
closing.
16. POSSESSION. Possession of the Property shall be delivered to Buyer as
follows: AT CLOSING subject to the following lease(s) or tenancy(s): NONE. If
Seller, after closing, fails to deliver possession on the date herein specified,
Seller shall be subject to eviction and shall be additionally liable to Buyer
for payment of $ N/A per day from the date of agreed possession until possession
is delivered.
17. CONDITION OF AND DAMAGE TO PROPERTY. Except as otherwise provided in this
contract, the Property and Inclusions shall be delivered in the condition
existing as of the date of this contract, ordinary wear and tear excepted. In
the event the Property shall be damaged by fire or other casualty prior to time
of closing, in an amount of not more than ten percent of the total purchase
price, Seller shall be obligated to repair the same before the date of closing.
In the event such damage is not repaired within said time or if the damages
exceed such sum, this contract may be terminated at the option of Buyer. Should
Buyer elect to carry out this contract despite such damage, Buyer shall be
entitled to credit for all the insurance proceeds resulting from such damage to
the Property and Inclusions, not exceeding, however, the total purchase price.
Should any Inclusion(s) or service(s) fail or be damaged between the date of
this contract and the date of closing or the date of possession, whichever shall
be earlier, then Seller shall be liable for the repair or replacement of such
Inclusion(s) or service(s) with a unit of similar size, age and quality, or an
equivalent credit, less any insurance proceeds received by Buyer covering such
repair or replacement.
18. TIME OF ESSENCE / REMEDIES. Time is of the essence hereof. If any note or
check received as earnest money hereunder or any other payment due hereunder is
not paid, honored or tendered when due, or if any other obligation hereunder is
not performed or waived as herein provided, there shall be the following
remedies:
(a) IF BUYER IS IN DEFAULT:
[Check only one box.]
|X| (1) SPECIFIC PERFORMANCE. Seller may elect to treat this contract as
cancelled, in which case all payments and things of value received hereunder
shall be forfeited and retained on behalf of Seller, and Seller may recover such
damages as may be proper, or Seller may elect to treat this contract as being in
full force and effect and Seller shall have the right to specific performance or
damages, or both.
(2) LIQUIDATED DAMAGES. All payments and things of value received hereunder
shall be forfeited by Buyer and retained on behalf of Seller and both parties
shall thereafter be released from all obligations hereunder. It is agreed that
such payments and things of value are LIQUIDATED DAMAGES and (except as provided
in subsection (c) are SELLER'S SOLE AND ONLY REMEDY for Buyer's failure to
perform the obligations of this contract. Seller expressly waives the remedies
of specific performance and additional damages.
(b) IF SELLER IS IN DEFAULT:
Buyer may elect to treat this contract as cancelled, in which case all
payments and things of value received hereunder shall be returned and Buyer may
recover such damages as may be proper, or Buyer may elect to treat this contract
as being in full force and effect and Buyer shall have the right to specific
performance or damages, or both.
(c) COSTS AND EXPENSES. Anything to the contrary herein notwithstanding, in
the event of any arbitration or litigation arising out of this contract, the
arbitrator or court shall award to the prevailing party all reasonable costs and
expenses, including attorney fees.
19. EARNEST MONEY DISPUTE. Notwithstanding any termination of this contract,
Buyer and Seller agree that, in the event of any controversy regarding the
earnest money and things of value held by broker or closing agent, unless mutual
written instructions are received by the holder of the earnest money and things
of value, broker or closing agent shall not be required to take any action but
may await any proceeding, or at broker's or closing agent's option and sole
discretion, may interplead all parties and deposit any moneys or things of value
into a court of competent jurisdiction and shall recover court costs and
reasonable attorney fees.
20. ALTERNATIVE DISPUTE RESOLUTION; MEDIATION. If a dispute arises relating to
this contract, and is not resolved, the parties and broker(s) involved in such
dispute (Disputants) shall first proceed in good faith to submit the matter to
mediation. The Disputants will jointly appoint an acceptable mediator and will
share equally in the cost of such mediation. In the event the entire dispute is
not resolved within thirty (30) calendar days from the date written notice
requesting mediation is sent by one Disputant to the other(s), the mediation,
unless otherwise agreed, shall terminate. This section shall not alter any date
in this contract, unless otherwise agreed.
21. ADDITIONAL PROVISIONS: (The language of these additional provisions has not
been approved by the Colorado Real Estate Commission).
A. Buyer agrees, at Closing, subject to the terms, conditions, and
provisions of this Contract, to have the Note Holder, currently J.D. Carelli,
execute and deliver to Seller a Covenant Not to Sue Seller (in the form attached
hereto as Exhibit A) on the existing Promissory Note and Deed of Trust dated May
31, 1991 ("Loan") valued at the outstanding balance of the "Loan" (which
principal balance as of the date of this Contract is agreed upon to be
$2,750,000.00) dated May 31, 1991, and recorded June 6, 1991 in Book 512 at Page
426 in the Clerk and Recorder's Office of the County of Gilpin, State of
Colorado, and to supply to Seller an appropriate release from personal liability
on the loan executed by Note Holder in the form attached hereto as Exhibit B.
B. The parties agree that this Contract and the Closing is expressly
conditional upon the concurrent closing on the attached and incorporated
Agreement for Purchase and Sale of Business Assets executed concurrent with this
Contract between Seller and Stage Stop Gaming Hall, Inc. The Date of Closing
under this Contract, Section 11, is subject to Seller's extension of the same
pursuant to Section 6 of the Agreement for Purchase and Sale of Business Assets.
C. Any notice required to be supplied to Buyer shall also be supplied to
his attorney, Kent Jay Levine, Esq., address and telephone number noted below.
Any notice required to be supplied to the Seller shall also be supplied to its
attorney,
D. This contract shall survive closing.
E. Facsimile signatures shall be accepted as originals for the purpose of
acceptance and execution of this document. If this document is accepted by both
Seller and Buyer in writing, this document shall become effective as the
Contract.
F. THIS CONTRACT SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF COLORADO.
G. Section 20 is amended by the addition of the following: the Parties,
Disputants, agree that any dispute between them, if not first resolved through
mediation, shall be submitted to binding arbitration. The arbitration shall be
governed by Colorado law and, absent agreement of the parties, shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and be held in the greater Denver Metropolitan area.
H. Seller shall execute at closing the IRS Certificate of Non-Foreign
Status.
I. To the extent possible, the Special Warranty Deed to Purchaser shall
reflect any exceptions to title, solely by Recorded Documents of Record
specifying the same by Book and Page or Reception Number and date of
recordation.
J. The Title Insurance Committment and Policy, pursuant to Section 8 of
this Contract shall be obtained from CLEAR CREEK-GILPIN COUNTY ABSTRACT CO, and
shall contain Extended ALTA endorsements, deleting the Standard pre-printed
Exceptions, excluding however the "survey" exception and any other exception the
title company will not delete without a current survey. Seller agrees to assign
to Buyer its rights in any and all surveys it has, and deliver to the same to
Buyer at or before Closing.
K. This Contract is expressly conditional upon the issuance of a Limited
Gaming License to Stage Stop Gaming Hall, Inc. on or before February 13, 1998,
which shall be at Buyer's sole cost and responsibility. This Contract is also
conditional upon Seller obtaining at or before Closing consent or amendment to
any obligations of Seller held by third parties to convey the Property to Buyer
free of all liens excepting the First Deed of Trust described above in
subsection 21 A.
L. The parties agree that the Seller and Buyer may close by "mail" so long
as all their respective documents are received by the Title Company no later
than one (1) Business Day prior to closing.
22 RECOMMENDATION OF LEGAL COUNSEL. By signing this document, Buyer and Seller
acknowledge that the Selling Company or the Listing Company has advised that
this document has important legal consequences and has recommended the
examination of title and consultation with legal and tax or other counsel before
signing this contract.
23. TERMINATION. In the event this contract is terminated, all payments and
things of value received hereunder shall be returned and the parties shall be
relieved of all obligations hereunder, subject to Section 19.
24. SELLING COMPANY BROKER RELATIONSHIP. The selling broker, XXXX , and its
salespersons have been engaged as XXXX . Selling Company has previously
disclosed in writing to the Buyer that different relationships are available
which include buyer agency, seller agency, subagency, or transaction-broker.
25. NOTICE TO BUYER. Any notice to Buyer shall be effective when received by
Buyer, or, if this box is checked q when received by Selling Company.
26. NOTICE TO SELLER. Any notice to Seller shall be effective when received by
Seller or Listing Company.
27. MODIFICATION OF THIS CONTRACT. No subsequent modification of any of the
terms of this contract shall be valid, binding upon the parties, or enforceable
unless made in writing and signed by the parties.
28. ENTIRE AGREEMENT. This contract constitutes the entire contract between the
parties relating to the subject hereof, and any prior agreements pertaining
thereto, whether oral or written, have been merged and integrated into this
contract.
29. NOTICE OF ACCEPTANCE; COUNTERPARTS. This proposal shall expire unless
accepted in writing, by Buyer and Seller, as evidenced by their signatures
below, and the offering party receives notice of such acceptance on or before
FEBRUARY , 1998 (Acceptance Deadline). If accepted, this document shall become a
contract between Seller and Buyer. A copy of this document may be executed by
each party, separately, and when each party has executed a copy thereof, such
copies taken together shall be deemed to be a full and complete contract between
the parties.
- ------------------------------- -------------------------------
Buyer J.D. CARELLI Buyer
Date of Buyer's signature Date of Buyer's signature
FEB. 6, 1998 FEB. 6, 1998
Buyer's Address: P.O. Box 74 , Central City, Colorado 80427
GOLD COIN, INCORPORATED
- ------------------------------- ------------------------------
Seller by Seller
Date of Seller's signature Date of Seller's signature
FEB. 6, 1998 FEB. 6, 19
Seller's Address
--------------------------------------------------------------
The undersigned Broker(s) acknowledges receipt of the earnest money deposit
specified in Section 3, and Selling Company confirms its Broker Relationship as
set forth in Section 24.
Selling Company NONE
Listing Company NONE
AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
THIS AGREEMENT, is entered into and dated as of the 6 th day of February,
1998, by and between Stage Stop Gaming Hall, Inc. ("Buyer"), and Gold Coin
Incorporated, a Delaware corporation, d/b/a Lady Luck Gold Coin Gambling Hall &
Saloon in Central City, Colorado ("Seller").
RECITALS:
This Agreement is made with reference to the following facts and
objectives:
(A) Seller, owns certain assets associated with its business known as Lady
Luck Gold Coin Gambling Hall & Saloon in Central City, Colorado,("Premises"),
(and is hereinafter referred to as the "Business") and it desires to sell a
substantial portion of such Assets to Buyer upon the terms and conditions set
forth in this Agreement.
(B) Buyer desires to purchase such assets of Seller upon the terms and
conditions set forth in this Agreement.
(C) In addition to physical assets, Buyer desires and Seller desires to
terminate in favor of Buyer certain licenses, permits, rights and other similar
assets so as to enable Buyer to operate a limited gaming casino at the Premises.
(D) Seller is liable to Buyer pursuant to that certain Promissory Note and
Deed of Trust dated May 31, 1991 ("Loan") assumed by Seller. Buyer, subject to
the terms, conditions, and provisions of this Agreement agrees to have the Note
Holder, currently J.D. Carelli, execute and deliver to Seller a covenant not to
sue Seller on the Loan. Buyer shall also provide Seller an appropriate release
from any personal liability on the Loan executed by Note Holder in a form
reasonably satisfactory to the parties.
(E) Seller for the mutual promises set out herein, and as further
consideration for and an inducement to Buyer to enter into this transaction, are
willing to undertake certain obligations as provided herein:
AGREEMENT:
NOW, THEREFORE, in consideration of the recitals and the mutual agreements,
provisions, and covenants herein contained, the parties hereto hereby agree as
follows:
1. Sale of Assets. Except as provided herein, Seller hereby sells, conveys,
assigns, transfers, and delivers to Buyer, the following described properties
and assets, free and clear of all liens and encumbrances:
1.1 Inventory and Supplies. All inventory and supplies of Seller shall be
transferred to Buyer, except as excluded on Schedule 2. Seller shall maintain
the inventory level from the date of this agreement and Closing in its normal
course of business. Buyer shall be entitled to have an itemized physical
inventory be taken by Buyer and Seller as set forth in Section 9 of this
Agreement.
1.2 Furniture, Equipment, and Machinery. All items of furniture, equipment,
machinery, fixtures, tools, devices, vehicles, and other tangible personal
property shall be described on Schedule 1.2 pursuant to Section 9 of this
Agreement which shall include, but not be limited to the tangible personal
property located as of the date of this Agreement on the Premises ("Casino F,F &
E") (collectively "Fixed Assets") , except as excluded on Schedule 2. At
closing, Seller shall issue its warranty to Buyer that the Casino F,F & E, to
the best of Seller's knowledge, is in good working condition, except as
disclosed in writing to Buyer on or before February 10, 1998. Seller agrees that
limited gaming devices shall be transferred to Buyer, at no additional cost or
expense to Buyer by one who holds a proper license to do so, e.g. IGT
1.3 Surrender and Transfer of Licenses. All right, title and interest of
Seller in any licenses it holds for and at the Premises for limited gaming,
liquor, and the like to operate its Business shall be terminated, surrendered,
or canceled along with all other obligations imposed by the applicable local and
Colorado governmental agencies concurrent with the Closing.
1.4 Trade Name, Trademark, and Service Mark. All right, title, and interest
in the Trade Name, Trademark, Service Mark, Registrations, and pending
Applications for Registration, if any for "Gold Coin," and other similar names,
(the "Name"). Following Closing Seller shall amend its Articles of Incorporation
to a name dissimilar to the "Name" which shall be the property of Buyer. Seller
shall release and waive any and all rights thereto and will not make use thereof
after Closing.
1.5 Leases and Contracts. All of Seller's right, title and interest in and
to the leases, contracts, purchase and sales contracts, and other agreements
listed on Schedule 1.5 attached hereto, true and correct copies of which shall
be delivered to Buyer by Seller.
1.6 Other Assets; Consent of Third Parties. If assignment or transfer of
any assets shall require the consent of any party thereto other than Seller,
this Agreement shall not constitute an agreement to assign the same, and such
items shall not be assigned to nor assumed by Buyer if an actual or attempted
assignment thereof would constitute a breach or default thereunder. Seller shall
use its reasonable efforts to obtain such consents, to the extent required, of
such other parties to such items. If any such consent cannot be obtained, Seller
will cooperate in any reasonable arrangement designed to obtain for Buyer all
benefits and privileges of the applicable item while protecting Seller from
continuing liabilities or obligations thereunder. Seller's "Gold Coin" tokens
shall be transferred to Buyer, for which Buyer agrees to assume redemption
liability for all outstanding "Gold Coin" tokens. Buyer shall also receive all
furniture and equipment at Seller's office located in Golden Colorado, and its
warehouse/storage facility in Colorado, such items are transferred in an AS IS,
WHERE IS CONDITION, which Buyer shall cause to be removed from such location(s)
following Closing. All books and records of Seller relating to the Assets shall
be retained by Seller and shall remain in its physical possession. Buyer,
however, may reasonably inspect, copy, examine, and review all of said books and
records, at the Premises, or within the greater Denver metropolitan area,
without restriction following the date hereof.
1.7 Customer Lists. All lists of customers of Seller, both active and
inactive, associated with its Business.
1.8 Slot Club Liability; Payment to Buyer at Closing. Buyer agrees to
assume redemption liability for all outstanding "points" or script to members of
Seller's Mad Money Slot Club of the Business. Seller agrees to pay to Buyer at
Closing the sum of $12,000.00 due to replacement or repair of the carpet at the
Premises, Buyer agrees to accept the condition of the carpet.
1.9 Leasehold Improvements. All improvements made to the Premises which are
not otherwise fixtures or part of the real estate transferred to the Buyer
pursuant to the terms of the attached Commercial Contract to Buy and Sell Real
Estate.
2. Excluded Assets. Except as otherwise agreed, Buyer shall not purchase
any of Seller's cash or those assets described on Schedule 2 and shall not
purchase or assume any contract or agreement other than those described on
Schedule 1.5.
3. Consideration Payable to Seller by Buyer. Subject to the terms and
conditions of this Agreement, and in reliance upon the representations and
warranties of Seller herein contained, and in consideration of the sale,
conveyance, assignment, transfer and delivery by Seller of the Assets pursuant
to Section 1 hereof, Buyer agrees as follows:
<PAGE>
3.1 Purchase Price for the Assets. The purchase price for the Assets
described in Section 1 and the Real Estate as described in the attached
concurrent Contract to Buy and Sell Real Estate for the Premises (120 Main
Street, Central City, Colorado 80427) shall be the agreement of Buyer to have
the Note Holder at Closing execute a covenant not to sue Seller on the existing
Promissory Note and Deed of Trust dated May 31, 1991 ("Loan") valued at the
outstanding balance of the "Loan" (which principal balance as of the date of
this Agreement and the concurrent Contract is agreed upon to be $2,750,000.00)
dated May 31, 1991, and recorded June 6, 1991 in Book 512 at Page 426 in the
Clerk and Recorder's Office of the County of Gilpin, State of Colorado, and to
supply to Seller an appropriate release from personal liability on the loan in a
form reasonably satisfactory to the parties.
3.1A Earnest Money. (Omitted)
3.1B Down Payment. (Omitted)
3.1C Assumption of Debt. (Omitted)
3.1D Balance and Terms. (Omitted)
3.2 Assumption of Liabilities. From and after the Closing Date, Buyer shall
assume and agree to pay, perform and discharge the obligations of Seller
accruing from and after the Closing Date only with respect to the lease and
other contracts described in Sections 1.5, and 1.6. Buyer does not assume and
shall not be deemed to have assumed any other liability or obligation of Seller.
3.3 Allocation of Purchase Price. The parties hereto agree that the
Purchase Price shall be allocated to the Assets in accordance with this section
after inventory pursuant to Section 9 of this Agreement and a written allocation
of the Purchase Price shall then be completed, and attached to this Agreement as
Schedule 3.3.
The parties hereto acknowledge that such allocation, when agreed upon in
writing between the parties, will represents the fair market value of the Assets
and shall be binding upon the parties hereto for federal and state tax purposes.
The parties shall agree, in writing, on or before the Deadline Date on such
written allocation of purchase price, as a condition precedent to this
agreement.
4. Ancillary Agreements. The transaction contemplated herein includes the
parties hereto entering into certain additional agreements, as enumerated in
this Section 4, which shall be executed and delivered simultaneous with the
execution of this Agreement (the "Ancillary Agreements"). All such Ancillary
Agreements shall be agreed to between Buyer and Seller, in writing, on or before
the "Deadline Date", as a condition precedent to this Agreement.
4.1 Consulting Agreement. The parties agree that Seller shall, without cost
to Buyer, familiarize and acquaint Buyer with all material aspects of Seller's
Business from the date of Closing and for thirty (30) working days from the day
of Closing.
4.2 Non-Compete Agreement. (Omitted)
4.3 Assumption and Assignment Agreement. The parties agree to enter into an
Assumption and Assignment Agreement in substantially the form as set forth as
Schedule 4.3 ("Assumption and Assignment Agreement").
4.4 Corporate Restrictions. (Omitted)
5. Prior to Closing.
5.1 Operation Of The Company Prior To Closing. Seller hereby agrees, from
the date of execution of this Agreement to Closing, to carry on its business
activities and operations diligently and in substantially the same manner as has
been customary in the past. It is the intent of both parties to have Buyer
acquire the assets and to minimize the time period where the Premises would be
closed or not open to the public. Notwithstanding the foregoing, the parties
recognize and agree that for a period immediately prior to Closing, which shall
not exceed two (2) calendar days, Seller will need to close its Business at the
Premises to fulfill its obligations to both the City and State license law
officials, including surrender or termination of its respective liquor and
limited gaming licenses to permit issuance of like licenses to Buyer
("Closure").
5.2 Company Premises And Assets. Except as provided for in subsection 5.1
above, until Closing and possession is given to Buyer, Seller agrees to operate
and maintain the Premises and the Assets in good working order and condition.
5.3 Loss/Damage. In the event there is any loss or damage to the Premises
or the Assets at any time prior to Closing, the risk of loss shall be upon the
Seller. From Closing and thereafter, all risk of loss or damage shall be upon
Buyer.
5.4 Deadline Date. The parties agree whenever the term "Deadline Date" is
utilized in this Agreement, that on or before February 5, 1998, shall be the
date and meaning of the term "Deadline Date".
6. Closing. Closing will take place at a time and date mutually agreeable
to the parties, but in no event later than February 13, 1998 ("Closing Date"),
unless extended in writing by the parties hereto. Notwithstanding the foregoing,
in the event Seller is unable to obtain the necessary consents and releases to
permit title to the Assets to be transferred to Buyer free and clear of all
liens, Closing shall be extended by written notice from Seller to Buyer to a
date certain acceptable to both parties, and if not previously tendered, Seller
shall remit interest due and payable to J.D. Carelli pursuant to the terms of
the Promissory Note. Any such extended Closing Date shall be not less than three
(3) calendar days from the prior Closing Date. If Closing does not occur on or
before March 13, 1998 this contract shall terminate, and the parties shall be
relieved of all obligations hereunder
7. Buyer's Obligations at Closing. At Closing, Buyer shall:
7.1 Deliver Documents. Deliver to Seller, executed duplicate originals of:
(A) Such other general assignments or successor agreements regarding any
contract or Assent, such as the business telephone number, which Buyer is
assuming and agreeing to pay.
(B) Execute and deliver the documents set forth in Sections 3.1C and 3.2,
and any other documents required in this Agreement..
(C) Corporate authority of the Buyer to execute the Agreement, Contract,
and the Ancillary Agreements and other documents pursuant to the terms of this
Agreement.
(D) Buyer shall deliver, pursuant to Section 3.1, the executed Covenant Not
to Sue Seller on the Promissory Note and Release of Seller from the Loan.
8. Seller's and Shareholders' Obligations at Closing. At Closing, Seller
and Shareholders shall:
8.1 Deliver Documents. Deliver to Buyer, executed duplicate originals of:
8.1A Such other general assignments or successor agreements regarding any
contract or assent, such as the business telephone number, which Buyer is
assuming and agreeing to pay.
8.1B Except as set forth in 8.1C, a General Warranty Bill of Sale conveying
to Buyer the Assets of the Business pursuant to Section 1.2 of this Agreement)
to be transferred pursuant to this Agreement, the form of the Bill of Sale shall
be mutually agreed upon by the parties. Such agreement as to form of the Bill of
Sale shall be agreed upon in writing between the parties on or before the
Deadline Date.
8.1C A General Warranty Bill of Sale from a licensed limited gaming device
vendor for all of the gaming devices pursuant to Section 1.3. At closing, Seller
shall issue its warranty to Buyer that the Casino F,F & E, to the best of
Seller's knowledge, is in good working condition, except as previously disclosed
in writing to Buyer pursuant to subsection 1.2 of this Agreement. All other
included assets and items shall be transferred to Buyer in an AS IS, WHERE IS
CONDITION. Seller agrees that limited gaming devices shall be transferred to
Buyer, at no additional cost or expense to Buyer by one who holds a proper
license to do so, e.g. IGT
8.1D Termination, surrender, or cancellation of all right, title and
interest of Seller in any licenses it holds for and at the Premises for limited
gaming, liquor, and the like to operate its Business along with fulfillment of
all other obligations imposed by the applicable local and Colorado governmental
agencies concurrent with the Closing.
8.1E Transfer to Buyer all right, title, and interest in the Trade Name,
Trademark, Service Mark, Registrations, and pending Applications for
Registration, if any for "Gold Coin," and other similar names, (the "Name").
Seller shall release and waive any and all rights thereto and will not make use
thereof after Closing. Following Closing Seller shall amend its Articles of
Incorporation to a name dissimilar to the "Name" which shall be the property of
Buyer.
8.1F Evidence that Seller has paid or at Closing will pay all taxes and
obligations, accrued as of the date of Closing, including but not limited to all
social security, withholding, head, sales, workman's compensation, unemployment
insurance, gaming taxes and device fees (taxes based on AGP and device fees,
local and state) and income taxes to all applicable taxing, governmental or
other authorities.
8.2 Instruments of Conveyance. Execute and deliver such assignments, bills
of sale, endorsements, notices, consents, and assurances and such other
instruments of conveyance and transfer as counsel for Buyer shall reasonably
request and as shall be effective to vest in Buyer good and marketable title to
all of the Assets. Simultaneously with such delivery, Seller shall take all such
steps as may be necessary to put Buyer in actual possession and control of the
Assets. Seller further agrees that it will at any time, and from time to time
after the Closing Date, upon the reasonable request of Buyer and without
additional consideration, do, execute, acknowledge and deliver, or will cause to
be done, executed, acknowledged and delivered, all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances as may be
required in conformity with this agreement for the better assigning,
transferring, granting, conveying, asserting and confirming to Buyer or to its
successors and assigns, or for aiding and assisting in collecting and reducing
to possession, any or all of the Assets or other properties sold, conveyed,
assigned, transferred and delivered at the Closing to Buyer as provided herein.
Both parties agree to execute any post closing documents reasonably required of
the other party.
8.3 Resolutions. Deliver a copy of the Resolution of the Board of Directors
and the Shareholders of Seller authorizing the transaction contemplated by this
Agreement, certified by the Secretary or any Assistant Secretary of Seller.
9. Settlement; Inventory. By mutual agreement of the parties, but not later
than the day before the Closing Date, Seller and Buyer shall jointly conduct and
complete a physical count of all included assets to be purchased by Buyer
hereunder ("Inventory Date"). Seller and Buyer shall jointly prepare a written
inventory report which shall contain the description and quantity of such item
and the value of each item of Inventory and other included assets. As set forth
in this Agreement, the value of the Inventory being purchased by Buyer, as thus
quantified and priced, shall be included in a written settlement statement
jointly prepared by Seller and Buyer, which shall also set out the amount
attributed toward the Purchase Price for such Inventory and Assets described in
Section 3 above.
10. Representations, Warranties and Covenants of the Seller . Seller hereby
represents, warrants, and covenants to and with Buyer as follows:
10.1 Organization, Good Standing and Corporate Power. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware and has the regulatory and corporate power to own,
operate and lease its properties and carry on its business as now being
conducted in Colorado.
10.2 Corporate Authorization; Binding Effect. The execution, delivery and
performance of this Agreement by Seller has been duly authorized by the Board of
Directors and all of its Shareholders. This Agreement, the Ancillary Agreements,
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Seller and
constitutes the legal, valid and binding obligations of Seller enforceable in
accordance with their terms.
10.3 No Conflict With Other Instruments or Agreements. The execution,
delivery and performance of this Agreement and the Ancillary Agreements by
Seller will not result in a breach or violation of, or constitute a default
under Seller's Articles of Incorporation or By-Laws, or any agreement to which
Seller is a party or by which Seller is bound or to which any of its property is
subject and will not be in violation of any statute, judgment, order, rule or
regulation of any court, or any federal, state or other regulatory authority or
governmental body having jurisdiction over Seller in effect at the date hereof.
10.4 No Governmental Authorization Required. No consent, approval,
authorization or order of, or qualification with, any court, regulatory
authority or other governmental body is required for the consummation by Seller
of the transactions contemplated by this Agreement.
10.5 Licenses, Certificates Or Permits. Seller hereby warrants that any and
all licenses, certificates or permits necessary to continue the operation of the
Business are current and valid up to the time of Closure of the Business (as
defined in subsection 5.1 of this Agreement). Except as set forth in writing and
delivered to Buyer, Seller hereby warrants that said licenses, certificates or
permits have never been suspended or revoked and that there are no proceedings,
in progress or threatened, to suspend or revoke said licenses, certificates or
permits, except where such suspension or revocation has not had a material
adverse affect on the Business.
10.6 Title to Assets, Absence of Liens, Condition of Assets. Except as
provided in this Agreement, Seller has good and marketable title and ownership,
and will transfer to Buyer title to all of the Assets, free and clear of all
pledges, liens, defects, leases, licenses, equities, conditional sales
contracts, charges, claims, security interests, restrictions, chattel mortgages.
The Assets are sold to Buyer in the condition as warranted pursuant to
subsection 8.1C of this Agreement. Seller does not know of any latent defects in
the Assets or the Premises.
10.7 Assets. There is no asset used by Seller in its operation of the
Business (other than those Excluded Assets referred to in Schedule 2 above)
which is not transferred to Buyer pursuant to this Agreement.
10.8 Compliance With Agreement. Seller, to the best of Seller's knowledge,
is not in breach of, or in default under, any agreement, contract or commitment
described in Section 1.5. All such contracts and agreements are, and after
consummation of the transactions contemplated herein, will be legal, valid and
binding obligations of the respective parties thereto, to the best of Seller's
knowledge.
10.9 Financial Statements. (Omitted)
10.10 Conduct of Business Since . Since 1993,:
10.10A (Omitted) 10.10B (Omitted) 10.10C (Omitted) 10.10D (Omitted) 10.10E
(Omitted)
10.10F Seller represents, warrants and agrees that all outstanding
liabilities of Seller shall be paid in full on or before Closing and that Buyer
shall receive possession and control of the Assets and all other rights acquired
herein, free and clear of any encumbrances, excepting for Loan in favor of Buyer
and assumed by Seller which is the subject of the Covenant Not to Sue described
in this Agreement and the Contract to Buy and Sell Real Estate. Seller further
warrants that it has paid and will pay all taxes and obligations, as they come
due, including but not limited to all gaming taxes and device fees (taxes based
on AGP and device fees, local and state) social security, withholding, head,
sales workman's compensation, unemployment insurance, and income taxes to date
of Closing to all applicable taxing authorities.
10.11 Absence of Undisclosed Liabilities. Except as and to the extent
reflected in the Financial Statements or Schedule 10.10, Seller did not have, as
of the date of the Financial Statements, and as of the Date of Closing, any
material (individually or in the aggregate) liabilities (secured or unsecured
and whether accrued, absolute, direct, indirect, contingent or otherwise).
10.12 Litigation. Seller, to the best of Seller's knowledge, represents,
warrants and covenants that there are no claims, legal actions or governmental
investigations threatened against Seller which, if adversely determined, would
have a material adverse effect on the Assets or the Business. To the best of
Seller's knowledge there are no orders, decrees, judgments or agreements with
any court or governmental authority by which Seller or the Assets are bound.
Seller does not have any knowledge of any facts or contemplated event which, as
far as reasonably can be foreseen, may give rise to any claim, action, suit,
proceeding, complaint, investigation or inspection which could materially
adversely affect the Assets.
10.13 List of Contracts and Other Data. Schedule 10.12 sets forth, as of
the date of this Agreement, a listing of the following, true and correct copies
of which have been furnished to Buyer:
10.13A All existing contracts and commitments which are material to the
Business (including without limitation, mortgages, licenses, leases, indentures,
guaranty and indemnification agreements, loan agreements, dealer, franchise
distribution agreements, advertising contracts, patent, trademark and similar
licenses, and other agreements and contracts), whether written or oral, to which
Seller is a party, relating to the Assets or the business operated by Seller at
the Business.
10.13B All material employment and consulting agreements, executive
compensation plans, bonus plans, deferred compensation agreements, employee
pension plans, employee stock ownership plans or retirement plans, severance pay
plans, employee profit sharing plans, thrift plans, savings-plans, group life
insurance, hospitalization insurance, or other plans or arrangements, and all
union or labor contracts, whether written or oral, providing for benefits for
employees of Seller at the Business.
10.13C (Omitted.)
10.14 Labor Matters. Seller is not a party to any collective bargaining
agreements affecting the Business. On the date hereof, there are no material
controversies pending or, to the knowledge of Seller or Shareholders, threatened
between Seller and any of its employees.
10.15 Compliance with Laws. The Assets, Premises, and all assets subject to
leases described in Schedule 1.5 are being used and occupied, and are located
and constructed, in compliance with, and conform to all applicable federal,
state and local laws, rules, regulations and ordinances, except where failure to
conform would not have a material adverse effect on the Business. Seller, to the
best of Seller's knowledge, hereby warrants that the Premises, and Assets are in
full compliance with all federal, state and local building, fire, safety, health
and environmental requirements; and that, if any expenses are necessary to bring
the Premises or Assets into compliance with any such governmental requirements,
those expenses shall be the sole responsibility of, and will be paid by Seller.
Seller shall also be responsible for compliance with all employment laws
including Family Medical Leave Act, Department of Labor laws, whether such laws
are Federal or State in nature.
10.16 Relationship With Suppliers and Customers. (Omitted.)
10.17 Brokers and Finders. Seller has not employed any investment banker,
broker or finder, or incurred any liability for any brokerage fees, commissions
or finders fees in connection with the transactions contemplated by this
Agreement. Seller shall be solely liable to pay any monies due any Broker not
engaged by Buyer.
10.18 Environmental Matters. For purposes of this Section 10.18, "Hazardous
Substances" shall mean any pollutants, contaminants or other dangerous, toxic or
hazardous chemicals, wastes, materials or substances as defined in or governed
by any federal, state or local statute, law, regulation or other requirements
relating to any Hazardous Substance or otherwise relating to human health and
safety or the environment, and also including any urea-formaldehyde,
polychlorinated bipheyls, asbestos-containing materials, petroleum products, and
any other waste, material, substance, pollutant or contaminant which might
subject the owner of the Assets or the Business to any claims, demands, damages,
costs, expenses or other liabilities under any applicable statute, law,
regulation or other requirements. The warranties and representations set forth
in this Subsection 10.18, are restricted to the Seller's knowledge as of the
date of Closing and are further restricted to solely those matters which first
occurred during Seller's ownership of the Premises. Seller, if it has possession
of a Phase I Environmental Study of the Premises shall promptly provide a copy
to Buyer.
No person or entity has asserted against Seller or Shareholders any
demands, damages, costs, expenses, causes of action or claims, however defined
arising out of or due to (a) the emission, disposal, discharge or other release
or threatened release of any Hazardous Substances in connection with the
Business or Assets first occurring during the period of Seller's ownership of
the Premises or (b) any injury to human health or the environment by reason of
the condition, of the Business or the Assets but only to the extent such
condition first occurred and came into being during the period of Seller's
ownership of the Premises.
During the period of Seller's Ownership of the Premises, there is not, and
has not been, any emission, disposal, discharge or release or threatened release
at or from the Assets or the Business of any Hazardous Substances; no part of
the Assets or the Business has been used as a landfill, dump or other disposal
area for Hazardous Substances, no underground storage tanks (whether or not
currently in use) have been located at the Assets or the Business; no Hazardous
Substances are located at the Assets or the Business except as may be listed on
Schedule 10.17; and there have been no investigations, inspections, or inquiries
of any kind with respect to the Assets or the Business by any governmental
authority which in any way pertain to Hazardous Substances or the violation or
potential violation of any Environmental Laws (defined below). Seller is not
currently being charged with any violation of, and to the best of Seller's
knowledge, Seller is now operating, and at all times has operated the Business
and the Assets in compliance with all applicable foreign, federal, state and
local statutes, laws or regulations or other requirements relating to the
environment or human health and safety, including, but not limited to, laws or
regulations relating to emissions, disposals, discharges, releases or threatened
released of Hazardous Substances into ambient air, surface water, ground water,
or land, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Substances
("Environmental Laws). No expenditures will be required in order for Buyer to
comply with Environmental Laws in force as of the date of the Agreement in
connection with the Business and the Assets after Buyer acquires the Assets from
Seller or to clean-up or remove Hazardous Substances which may have been
discharged, emitted, disposed of or released at the Business but only to the
extent any such discharge, emission, disposal or release first occurred during
the period of Seller's ownership of the Premises.
10.19 Disclosure and Reliance. (Omitted.)
11. Representations and Warranties of Buyer. Buyer represents, warrants,
and covenants to and with Seller as follows:
11.1 No Conflict With Other Instruments or Agreements. The execution,
delivery and performance of this Agreement and the Ancillary Agreements by Buyer
will not result in a breach or violation of, or constitute a default under
Buyer's Articles of Incorporation or By-Laws, or any agreement to which Buyer is
a party or by which Buyer is bound and will not be in violation of any statute,
judgment, order, rule or regulation of any court, or any federal, state or other
regulatory authority or governmental body having jurisdiction over Buyer in
effect at the date hereof.
11.2 Organization, Power. Buyer is a corporation duly organized, existing
and in good standing under the laws of the State of Colorado, and has all
requisite corporate power and authority to own, operate and lease its
properties, and to carry on its business as now being conducted and to enter
into this Agreement and perform its obligations hereunder.
11.3 Authority Relative to Agreement. The execution, delivery and
performance of this Agreement by Buyer and the consummation by it of the
transactions contemplated hereby, have been approved by all necessary corporate
action on the part of Buyer and this Agreement constitutes the legal, valid and
binding obligation of Buyer, except as the same may be limited by bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors
rights generally.
11.4 No Government Authorization Required. No consent, approval,
authorization or order of, or qualification with, any court, regulatory
authority or other governmental body is required for the consummation by Buyer
of the transactions contemplated by this Agreement, except as set forth in the
attached Schedule 11.4.
12. Indemnification of Buyer and Seller.
12.1 Indemnity by Seller. Except for those specific obligations and amounts
assumed by Buyer, Seller shall indemnify and hold Buyer harmless against and in
respect of:
12.1A All debts, liabilities and obligations of Seller of any nature,
whether accrued, absolute, contingent, or known or unknown on the date of
Closing, regarding Seller's Business and the Premises including, but not limited
to:
(i) Any liabilities, fines, obligations or other expenses arising out of or
relating to Seller's failure to comply with any relevant corporate or other
federal, state or local laws, rules, ordinances or regulations, or failure to
obtain any relevant governmental permit, license, consent or other
authorization.
(ii) Any liabilities obligations or other expenses resulting from any
breach of contract, tort, product liability, unfair labor or other employment,
unemployment practice, or other claim arising from or with respect to Seller's
business operations and asserted by any employee, creditor, customer, claimant
or other party:
(iii) Any liabilities, obligations or other expenses resulting from any
suit, action, arbitration, charge, governmental investigation, claim, litigation
or proceeding, pending or threatened, affecting any of Seller's properties or
business or the Assets existing or arising on or resulting from events which
occurred or failed to occur on or before the date of Closing, to the extent not
specifically assumed by Buyer hereunder.
12.2 Any damage or deficiency resulting directly or indirectly from any
misrepresentation, breach of warranty, representation, covenant or non
fulfillment of any agreement on the part of Seller under this Agreement, or from
any misrepresentation in or omission from any certificate or other instrument
furnished or to be furnished to Buyer hereunder.
12.3 All other actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses incident to the foregoing, including, without
limitation, actual attorneys' fees and other out-of-pocket expenses.
12.4 Indemnity by Buyer. Buyer shall indemnify and hold Seller harmless
against and in respect of:
(i) All debts, liabilities and obligations of Seller assumed by Buyer;
(ii) Any damage or deficiency resulting directly or indirectly from any
misrepresentation, breach of warranty, representation, covenant or non
fulfillment of any agreement on the part of Buyer under this Agreement, or from
any misrepresentation in or omission from any certificate or other instrument
furnished or to be furnished to Seller hereunder;
(iii) All other actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses incident to the foregoing, including, without
limitation, actual attorneys' fees and other out-of-pocket expenses; and
(iv) Any liability arising from Buyer's operation of the Business and which
first accrues following Closing.
12.5 Notice of Claims. Any party being indemnified pursuant to this Section
12 ("Indemnitee") agrees to give the other party ("Indemnitor") notice of any
and all claims asserted against Indemnitee for which indemnification is or may
be sought under this Section 12 no later than three (3) years from the date of
Closing. Such notice shall be given within a reasonable time after receipt of
written notice of such claim by Indemnitee. Failure to give such notice shall
not abrogate or diminish Indemnitor's obligation under this Section if
Indemnitor has or receives knowledge of the existence of any such claim by any
other means or if such failure does not prejudice Indemnitor's ability to defend
such claim.
12.6 Defense of Claim. In any litigation, administrative proceeding,
negotiation or arbitration pertaining to any claim for which indemnification is
sought under this Section 12. Indemnitee shall have the right to select legal
counsel to represent Indemnitee and to otherwise control such litigation,
proceedings, negotiations and arbitration, subject to the reasonable approval of
Indemnitor , which approval shall not be unreasonably withheld, all such legal
fees shall be at Indemnitor's expense. If Indemnitor shall, within a reasonable
time after notice, fail to defend, Indemnitee shall have the right, but not the
obligation, to undertake the defense of and to compromise or settle the claim or
other matter on behalf, for the account, at the risk of Indemnitor. If the claim
is one that cannot by its nature be defended solely by Indemnitor (including,
without limitation, any federal or state tax proceeding) then Indemnitee shall
make available all information and assistance as Indemnitor may reasonably
request, at Indemnitor's expense.
12.7 Alternative Dispute Resolution..
A. Alternative Dispute Resolution. In the event the parties are not able to
resolve a dispute between them, the Parties shall proceed in good faith to
submit the matter to mediation. In the event the parties fail to resolve the
matter within thirty (30) calendar days from the date written notice requesting
mediation is sent by one party to the other, the parties agree the matter shall
be submitted to binding arbitration. The arbitration shall be governed by
Colorado law and, absent agreement of the parties, shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. Such Arbitration shall be held in the greater Denver Metropolitan
area. The provisions set forth in this Section shall not apply to any
foreclosure of the Deed of Trust against the Premises.
13. Conditions.
13.1 This Agreement is expressly conditioned upon:
(i) The concurrent closing on the attached and incorporated Contract to Buy
and Sell Real Estate executed by J.D. Carelli.
(ii) Issuance of a Limited Gaming License and applicable liquor license to
Stage Stop Gaming Hall, Inc. on or before February 13, 1998.
(iii) This Contract is also conditional upon Seller obtaining at or before
Closing consent or amendment to any obligations of Seller held by third parties
to assign, transfer and convey the Assets to Buyer free of all liens.
In the event the foregoing conditions shall not be satisfied or waived on
or before said date, any and all earnest monies shall be returned to Buyer
forthwith, and this Agreement shall be null, void, and of no further force and
effect, and each party hereto shall be released from any and all further
liability or obligations hereunder. Buyer may, at Buyer's sole election, waive
the foregoing condition. In the event Buyer proceeds to Closing, Buyer shall be
deemed to have waived said condition.
13.2 Inspection; Due Diligence. This Agreement is expressly conditioned
upon Buyer's inspection of and investigation of the Premises, Assets and the
Business on or before February 11, 1998 ("Inspection Deadline"). If written
notice, signed by Buyer, of any unsatisfactory condition of the Assets or
Business, is not received by Seller on or before said Inspection Deadline, the
same shall be deemed to be satisfactory to the buyer. If written notice of any
unsatisfactory material condition, signed by Buyer is given to the Seller,
Seller, at its sole option, may correct such unsatisfactory condition. If Seller
shall not have corrected said unsatisfactory material condition, or if Buyer
shall not have waived the objection which Buyer has registered on or before the
Closing Date, this contract shall terminate and this contract shall be null and
void and of no other force and effect, and each party hereto will be released
from any and all further liability or obligations hereunder and all earnest
monies shall be returned to the Buyer forthwith.
13.3 UCC Search. Seller shall, at its sole cost and expense, deliver to
Buyer on or before February 6, 1998 copies of all financing statements, security
agreements and other liens as well as the certification from the Secretary of
State's office (or other provider acceptable to Buyer) the UCC search as to any
filed or other liens, against the Seller or any of the Assets.
13.4 Condition Precedent. Whenever this Agreement references certain action
and written agreement on or before the "Deadline Date", as previously defined in
this Agreement, failure of the parties to agree to the same in writing, shall
result in a termination of the obligations of both Buyer and Seller under this
Agreement.
14. Expenses and Sales Taxes. Except as otherwise provided herein, each
party hereto shall pay its own costs and expenses incurred in connection with
the negotiation and preparation of this Agreement and the consummation of the
transaction contemplated herein; provided, however, that the Seller shall pay
any sales and use taxes accrued to the Closing Date on those Assets subject to
such local or state sales and use taxes. Any sales or use tax resulting from the
transfer of the subject assets from Seller to Buyer shall be paid by Seller at
the time of Closing. Personal property taxes shall be paid by Seller to date of
Closing with evidence of a Certificate of Taxes furnished to Buyer on or before
Closing.
15. Employee Matters. Buyer shall have no obligation to hire or employ any
of Seller's employees at the Business. Seller shall indemnify and hold Buyer
harmless from and against all liabilities which may exist by virtue of any
local, state or federal laws governing the relationship between Seller and its
employees. Except as allowed by Seller, prior to Closing, Buyer to keep this
matter confidential and disclosure to employees will be solely through the
Seller or by joint announcement. Seller consents that Buyer and its
representatives may interview any employee of Seller.
16. Miscellaneous. The following miscellaneous provisions shall apply to
this Agreement.
16.1 Notices. All notices which are required or may be given pursuant to
the terms of this Agreement shall be in writing and delivered personally or
mailed by Registered, Certified or Express mail, postage prepaid,or courier
(e.g. Federal Express, U.P.S., Airborne) at the expense of sender as follows:
To the Seller: Mr. Rory Reid, Secretary Gold Coin Incorporated 220 Stewart
Avenue Las Vegas, NV 89101
With copy to: Mr. Brian Hoffmann McDermott, Will & Emery 50 Rockefeller
Plaza New York, NY 10020
To the Buyer: Mr. J.D. Carelli, President Stage Stop Gaming Hall, Inc. P.O.
Box 74. Central City, CO 80427
With copy to: Kent Jay Levine, Esq. Kent Jay Levine, P.C. 3780 S. Broadway
Englewood, CO 80110-3612 or at such other addresses as any party hereto shall
have designated by notice in writing to the other parties hereto.
The parties further intend and agree that, in the event not otherwise
specified, ten (10) business days shall be assumed to be commercially reasonable
and adequate notice for such matters as notification of intent to enforce
remedies including, without limitation, the rights of secured party under the
Uniform Commercial Code.
16.2 Waivers. Any party hereto may, by written notice to the other party
hereto, (i) extend the time for performance of any of the obligations or other
actions of the other under this Agreement, (ii) waive any inaccuracies in the
representations and warranties of the other contained in this Agreement or in
any documents delivered pursuant to this Agreement, (iii) waive compliance with
any of the conditions or covenants of the other contained in this Agreement, or
(iv) waive or modify performance of any of the obligations of the other under
this Agreement. Except as provided in the preceding sentence, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties,
covenants, or agreements, contained in this Agreement. The Waiver by any party
hereto of a breach of any portion of this Agreement shall not operate or be
construed as a waiver of any subsequent breach.
16.3 Survival of Representations, Warranties, Covenants and
Indemnifications. The terms, conditions representations, warranties, covenants,
agreements and Indemnifications contained in this Agreement shall survive the
Closing shall not be merged into any documents or instruments of Closing,
without limitation, provided written notice of any breach is received by the
other party on or before three (3) years from Closing.
16.4 Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral and written, among the
parties hereto with respect to the subject matter hereof. Time is of the essence
to this Agreement.
16.5 Applicable Law. THIS AGREEMENT AND THE LEGAL RELATIONS AMONG THE
PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF COLORADO.
16.6 Binding Effect, Benefits. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, successors
and assigns; nothing in this Agreement, express or implied, is intended to
confer on any person other than the parties hereto or their respective heirs,
successors and assigns, any rights, remedies, obligations or liabilities under
or by reason of this Agreement.
16.7 Assignability. Notwithstanding anything contained herein to the
contrary, the foregoing shall not be deemed to permit the assignment by Buyer of
any rights under this Agreement, as this Agreement is not assignable nor
delegable by Buyer, except as provided in this Agreement.
16.8 Effect of Headings. The heading of the various sections and
subsections herein are inserted merely as a matter of convenience and for
reference and shall not be construed as in any manner defining, limiting or
describing the scope or intent of the particular sections to which they refer,
or as affecting the meaning or construction of the language in the body of such
sections.
16.9 Schedules. All Schedules referred to in this Agreement are attached
hereto and are incorporated herein by reference as if more fully set forth.
16.10 (Omitted.)
16.11 (Omitted.)
16.12 (Omitted.)
16.13 (Omitted.)
16.14 Books and Records. Buyer agrees that all books and records and other
information given by Seller to Buyer shall be returned to Seller if Buyer does
not complete this Agreement. In all events, Buyer will keep all matters of
information obtained from said books and records, directly or indirectly, in a
confidential manner and shall not disclose that information to any third
parties, except licensing authorities, governmental authorities and lenders, if
any.
16.15 Modification in Writing. This Agreement may not be amended nor may
any right hereunder be waived, except by an instrument in writing executed by
the parties hereto, or except by the functioning of the appropriate terms
written herein.
16.16 Severability. In the event any provisions hereof are found to be
unenforceable or illegal, the remaining portions hereof shall nonetheless be
enforceable provided that the underlying purposes of this Agreement may be
effectuated thereby.
16.17 Counterparts: Facsimile Execution. This Agreement may be executed in
counterparts, including executed copies transmitted by Facsimile, or other
electronic means, each of which shall constitute an original, but all of which
taken together shall constitute one and the same instrument. Each party shall
exchange and original signed document subsequent to transmitting a facsimile or
electronically transmitted copy.
16.18 Survival of the Covenants. (Omitted.)
16.19 Business Day. In the events any date for performance or any act shall
otherwise fall on a weekend or holiday, the same shall instead be deemed to be
extended to the next succeeding business day.
16.20 Further Cooperation. Each party agrees, in good faith, to cooperate
with the other, and make such further assurances and execute or cause to be
executed such further instruments as may be reasonably requested by the other
party in order that this Agreement may be fully performed in accordance with its
intent and provisions.
16.21 Construction. The language in all parts of this Agreement shall in
all cases be construed as a whole according to its fair meaning, strictly
neither for nor against any party hereto, and without implying a presumption
that the terms thereof shall be more strictly construed against one party by
reason of the rule of construction that a document is to be construed more
strictly against the person who himself or through his agent prepared the same,
it being agreed that representatives of both parties have participated in the
preparation hereof.
16.22 Time of the Essence. Time shall be of the essence with respect to the
performance with the laws of the State of Colorado applicable to contracts made
and performed entirely therein.
16.23 Closing. The business day following completion of the inventory shall
be the Closing Date. For purposes of this Agreement, Closing shall be deemed to
mean the time and place at which documents, and assets shall be executed,
delivered, transferred, tendered, assigned, and/or conveyed pursuant to the
terms of this Agreement.
16.24 Remedies. If any payment or performance due hereunder is not paid,
honored or tendered when due, or any other obligation hereunder is not performed
as provided herein, at the election of the non-defaulting party shall be
entitled to all such remedies available at law, in equity, including, without
limitation specific performance, the right to a receivership, and as provided by
agreement of the parties. Anything to the contrary herein notwithstanding, in
the event of any litigation arising out of this Agreement, any court or
arbitration panel shall award to the prevailing party all reasonable costs and
expenses, including attorney fees.
16.25 Casualty. In the event the Business premises and/or tangible Business
assets to be conveyed hereunder are substantially damaged by fire, flood, or
other casualty between the date of this Agreement and the date of Closing, Buyer
or Seller may avoid the contract and a full refund of all Buyer's earnest monies
shall be remitted immediately.
IN WITNESS WHEREOF, the parties acknowledge they have read this Agreement,
agree to be bound by this Agreement, and have each executed this Agreement
effective as of the day and year first above written.
BUYER:
Stage Stop Gaming Hall, Inc.
By:
Mr. J.D. Carelli, President
SELLER:
Gold Coin Incorporated
By:
Mr. Rory Reid, Secretary
<PAGE>
SCHEDULE 1.5
LEASES AND CONTRACTS
<TABLE>
<CAPTION>
VENDOR DESCRIPTION CONTRACT
DATE
<S> <C> <C> <C>
Central Bank/Bank Western ATM Machine /93
no copy Muszac Music
Dover Elevator Company Elevator Maintenance 6/8/93
Denver Burglar Alarm Burglar alarm maintenance 6/8/93
Denver Burglar Alarm Fire alarm maintenance 6/8/93
IGT Slot machine maintenance 5/2/97
no copy Terminex Exterminator
Glory Maintenance Coin counter maintenance 4/9/96
no copy BFI Trash Removal
no copy BFI Trash Removal
</TABLE>
If Buyer does not receive copies (of the above contracts shown as "no copy") or
does not supply written approval to Seller on or before 2/11/98, such contracts
shall be excluded from this Schedule 1.5.
<PAGE>
SCHEDULE 3.3
ALLOCATION OF PURCHASE PRICE
1. Inventory and supplies $ 10,000
2. Furniture, equipment, machines and tokens $ 600,000
3. Building and Improvements $ 1,567,500
4. Land $ 572,500
$ 2,750,000
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
Consolidated Statement of Financial Condition at December 31, 1997 and the
Consolidated Statement of Operations for the Year Ended December 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000906527
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 19,552
<SECURITIES> 0
<RECEIVABLES> 994
<ALLOWANCES> 208
<INVENTORY> 957
<CURRENT-ASSETS> 41,930
<PP&E> 154,900
<DEPRECIATION> 26,525
<TOTAL-ASSETS> 185,306
<CURRENT-LIABILITIES> 22,258
<BONDS> 176,814
18,402
0
<COMMON> 29
<OTHER-SE> (32,197)
<TOTAL-LIABILITY-AND-EQUITY> 185,306
<SALES> 157,291
<TOTAL-REVENUES> 170,474
<CGS> 66,439
<TOTAL-COSTS> 66,439
<OTHER-EXPENSES> 105,924
<LOSS-PROVISION> 185
<INTEREST-EXPENSE> 22,407
<INCOME-PRETAX> (36,462)
<INCOME-TAX> 49
<INCOME-CONTINUING> (36,511)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36,511)
<EPS-PRIMARY> (1.31)
<EPS-DILUTED> (1.31)
</TABLE>
