<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1997
REGISTRATION NO. 333-34755
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ANCHOR GAMING
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEVADA 88-0304253
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) Number)
</TABLE>
815 PILOT ROAD, SUITE G, LAS VEGAS, NEVADA 89119
(702) 896-7568
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
STANLEY E. FULTON
ANCHOR GAMING
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
815 PILOT ROAD, SUITE G
LAS VEGAS, NEVADA 89119
(702) 896-7568
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
GLEN HETTINGER WILLIAM M. HARTNETT
Hughes & Luce, L.L.P. Cahill Gordon & Reindel
1717 Main Street 80 Pine Street
Dallas, Texas 75201 New York, New York 10005
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1997
PROSPECTUS
1,800,000 SHARES
[LOGO]
ANCHOR GAMING
COMMON STOCK
-------------
All of the 1,800,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of Anchor Gaming ("Anchor" or the "Company") offered hereby
(the "Offering") are being sold by certain stockholders (the "Selling
Stockholders") of Anchor. See "Principal and Selling Stockholders." The Company
will not receive any of the proceeds from the sale of shares of Common Stock by
the Selling Stockholders.
The Common Stock is traded on the Nasdaq National Market under the symbol
"SLOT." On September 15, 1997, the last reported sale price for the Common Stock
on the Nasdaq National Market was $84.50 per share. See "Price Range of Common
Stock."
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK.
-----------------
NEITHER THE NEVADA STATE GAMING CONTROL BOARD NOR THE GAMING COMMISSION, THE
COLORADO LIMITED GAMING CONTROL COMMISSION, NOR ANY OTHER GAMING AUTHORITY
HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE
INVESTMENT MERITS OF THE SECURITIES OFFERED HEREBY. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT(1) STOCKHOLDERS(2)
<S> <C> <C> <C>
Per Share.............................. $ $ $
Total (3).............................. $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Selling Stockholders estimated to
be $380,000.
(3) One of the Selling Stockholders, Stanley E. Fulton, has granted the
Underwriters a 30-day option to purchase in the aggregate up to 270,000
additional shares of Common Stock solely to cover over-allotments, if any.
See "Underwriting." If the Underwriters exercise such option in full, the
total Price to Public, Underwriting Discount, and Proceeds to Selling
Stockholders will be $ , $ , and $ , respectively.
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as, and if delivered to and accepted by the Underwriters,
and subject to approval of certain legal matters by counsel. It is expected that
delivery of the shares of Common Stock subject to the Offering will be made in
New York, New York on or about , 1997.
-------------------
BTALEX.BROWN
MORGAN STANLEY DEAN WITTER
RAYMOND JAMES & ASSOCIATES, INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[Players seated at dedicated proprietary
games installed at casino location.]
-------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK IN
CONNECTION WITH THE OFFERING, INCLUDING OVER-ALLOTMENT, STABILIZING, AND
SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF PENALTY
BIDS. IN ADDITION, CERTAIN UNDERWRITERS (AND SELLING GROUP MEMBERS, IF ANY) MAY
ALSO ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE
SECURITIES EXCHANGE ACT OF 1934. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
Double Down Stud-Registered Trademark-, Colorado Central Station
Casino-Registered Trademark-, Silver Strike-Registered Trademark-, and Fast
Track Express-Registered Trademark- are registered trademarks, and Anchor
Coin-TM-, Anchor Gaming-TM-, Anchor Games-TM-, Spin for Cash-TM-, Wheel of
Gold-TM-, Clear Winner-TM-, Colorado Grande-TM-, Totem Pole-TM-, CashBall-TM-,
KenoBucks-TM-, Rock'N'Reels-TM-, Maggie's Slot Club-TM-, and Fast Track Slot
Club-TM- are trademarks of the Company.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED
ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THE UNDERWRITERS'
OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED AND THAT NO OUTSTANDING OPTIONS OR
WARRANTS WILL BE EXERCISED. UNLESS OTHERWISE SPECIFIED, YEARS REFERRED TO IN
THIS PROSPECTUS ARE CALENDAR YEARS. THE COMPANY'S FISCAL YEAR ENDS ON JUNE 30.
THE COMPANY
Anchor Gaming ("Anchor" or the "Company") is a diversified gaming company
that seeks to capitalize on its experience as an operator and developer of
gaming machines and casinos by developing gaming oriented businesses. Anchor
develops and distributes unique proprietary games, operates two casinos in
Colorado, including the state's most profitable casino, and operates one of the
largest and one of the most profitable gaming machine routes in Nevada.
Management believes that the Company benefits from, among other factors: (i)
depth of experienced and proven management at both the corporate and operating
levels; (ii) a diversified and stable earnings base with significant recurring
revenue sources; (iii) unique experience in developing and marketing proprietary
games; (iv) proven experience in developing, constructing, and operating
profitable casino enterprises; (v) the ability to effectively and profitably
distribute existing and new proprietary games due to its large established
casino customer base and its licenses in virtually all major domestic gaming
jurisdictions; (vi) a strong balance sheet with which to fund future growth
opportunities; and (vii) attractive existing internal growth opportunities in
its core businesses. Since fiscal year 1990, its first full year of operations,
through fiscal year 1997, Anchor has achieved eight consecutive years of
revenue, net income, and earnings per share growth, with revenue, net income,
and earnings per share during this period growing at compounded annual rates of
44%, 63%, and 43%, respectively. Additionally, Anchor's operating results
through June 30, 1997 reflect 20 consecutive quarters in which revenue, net
income, and earnings per share increased over the comparable period in the prior
year.
PROPRIETARY GAMES
Anchor develops proprietary games, which it both markets to unaffiliated
casinos and uses in its own gaming operations. The Company's strategy is to
develop games that provide casinos with a higher win per machine than their
existing gaming devices while generating significant recurring revenues to the
Company from royalty, revenue participation, or other similar agreements.
Although the Company initially developed proprietary games as a complement to
its own gaming machine operations, since February 1993 the Company has actively
marketed its proprietary games to unaffiliated casinos. The Company currently
provides proprietary games to virtually every major casino in the United States,
as well as its own casinos. In September 1996, the Company entered into a
strategic alliance with International Game Technology ("IGT"), the largest
manufacturer of computerized gaming casino products, to enhance the Company's
ability to develop and distribute proprietary games. See "Business--Proprietary
Games--Anchor IGT Strategic Alliance." Through this strategic alliance the
Company and IGT have formed a joint venture (the "Anchor IGT JV") to develop,
integrate, and distribute proprietary game concepts on a wide area progressive
system ("WAP"). The Company's revenues from proprietary games totaled $49.7
million for the fiscal year ended June 30, 1997, an increase of approximately
132% over fiscal year 1996.
The Company, seeking to capitalize on its established sales and marketing
infrastructure, its extensive base of existing casino customers, and its
licenses in virtually all major domestic gaming jurisdictions, has been actively
developing proprietary games, which can be classified as either a dedicated
proprietary game, a proprietary game on a WAP, or a converted proprietary game.
The Company's proprietary games are designed to increase gaming customer play
levels by either enticing the customer to play longer or to wager more coins per
play. The Company believes that a significant opportunity exists to further
expand and develop the market for proprietary games distributed on a
participation basis.
1
<PAGE>
DEDICATED PROPRIETARY GAMES. The Company has successfully developed or
acquired the rights to five proprietary games that are currently installed and
approved for use in unaffiliated casinos. Anchor's dedicated proprietary games
include Wheel of Gold, Totem Pole, Silver Strike, Clear Winner, and
Rock'N'Reels. All of the machines are placed in casinos free of charge under
royalty, revenue participation, or other similar agreements, allowing the casino
to avoid up-front purchase costs and providing significant recurring revenues to
Anchor. The machines utilize numerous unique concepts and designs in order to
increase overall gaming customer play levels. For example, the Company's two
most popular dedicated proprietary games, Totem Pole and Wheel of Gold, each
incorporate innovative game features that contribute to higher play levels.
Totem Pole comprises three games in one slot machine creating a unique visual
presentation in the casino environment. Greater play levels are realized on
Totem Pole because the player must insert the maximum number of coins to
activate all three games and benefit from the addition of a "wild" symbol.
Players on the Wheel of Gold machine have the opportunity to activate on the
same machine a three dimensional "roulette" type wheel with significantly higher
potential winnings, providing a secondary game event and additional excitement
to the customer through the Company's "game within a game" concept. Anchor's
"game within a game" concept provides the player an incentive to increase play
through the secondary game event, thereby maximizing customer playing time.
Wheel of Gold is the first generation of the Company's "game within a game"
concept that management believes will form the basis of a significant portion of
its future dedicated proprietary game designs. The Company has additional
innovative game machine concepts in various stages of development using the
Company's "game within a game" concept and other unique concepts.
WAP PROPRIETARY GAMES. A WAP is a system that electronically links
individual slot machines among multiple locations, allowing all the machines to
share a common jackpot. The WAP jackpot increases, or progresses, by a certain
percentage of each coin inserted into any one of the machines on the WAP
network, thereby allowing the jackpot to increase rapidly to a significant
amount. Management believes that the larger jackpots offered by WAP machines
attract a distinct portion of a customer's gaming budget as compared to a
non-progressive slot machine. In order to capture this portion of a customer's
gaming budget, the Company has entered into a strategic alliance resulting in
the Anchor IGT JV for the purpose of developing and installing WAP machines
based on both existing dedicated proprietary games and other proprietary
designs. The Company and IGT share in the management of the Anchor IGT JV and
will share equally in its profits and losses. The first WAP machine introduced
by the Anchor IGT JV is the Wheel of Fortune, a game that is very similar to the
Company's Wheel of Gold. Additionally, the Anchor IGT JV has recently introduced
Totem Pole on a WAP and has other WAP concepts at various stages of development.
CONVERSION OPPORTUNITY. The Company's first proprietary game was the video
poker game Double Down Stud, a software conversion kit that the Company installs
in existing third party casino gaming machines. The enhancement created by this
installation provides the Company a daily royalty for each converted machine.
Management believes that as casinos experience pressure to increase "same store
sales" they will seek to enhance the performance of their installed base of
machines by adding new features by means of conversion kits. The Company is
currently developing technology to allow older generation slot machines to
utilize additional features such as the "game within a game" concept. The
Company anticipates that future conversion kits would be installed on a royalty
or similar basis. The Company estimates that there are currently more than
300,000 slot machines installed in the United States. The Company believes that
this installed base of machines represents a substantial opportunity for
installation of conversion kits.
CASINOS
In November 1990, the state of Colorado approved limited stakes gaming
($5.00 or less per wager) in two historic gold mining areas, Black Hawk/Central
City and Cripple Creek. Anchor currently operates a casino in each of these
markets, the Colorado Central Station Casino in Black Hawk and the Colorado
2
<PAGE>
Grande Casino in Cripple Creek. The Colorado gaming market experienced 5%
revenue growth in fiscal year 1997. The Company's revenues from casino
operations totalled $69.2 million for the fiscal year ended June 30, 1997, an
increase of approximately 6.3% over fiscal year 1996.
COLORADO CENTRAL STATION CASINO. On December 25, 1993, the Company opened
the Colorado Central Station Casino in Black Hawk, which is currently the
highest revenue producing and most profitable casino in the state. Approximately
three million people live within a 100-mile radius of the Black Hawk/Central
City area, which is located approximately 40 miles from Denver. After completion
of a 2,750 square foot expansion in 1996, the casino building has approximately
49,000 square feet of main facility area, with 16,637 square feet of gaming
space over three floors. The Colorado Central Station Casino features more than
680 gaming machines, ten blackjack tables, nine poker tables, and a food court
restaurant area. The casino benefits from a favorable location, as it is the
first casino encountered by customers traveling from Denver to the Black
Hawk/Central City area. In addition, the Colorado Central Station Casino offers
convenient parking to its customers, with more than 770 parking spaces, whereas
many other casinos in the Black Hawk/Central City market lack convenient parking
and, as a result, have had difficulty attracting and retaining customers. The
Colorado Central Station Casino is also the closest casino to Black Hawk's 3,000
space public parking facility, located one and one-half miles from the casino,
and is the first stop from the parking facility on the parking lot shuttle bus
route. Anchor believes that the Colorado Central Station Casino's location,
convenient parking, size, and design, and highly successful Fast Track Slot Club
and player tracking system give it a competitive advantage over the other
casinos in the Black Hawk/Central City market. The Colorado Central Station
Casino's net win per device (which includes both gaming machines and table
games) per day was $239 for the fiscal year ended June 30, 1997 as compared to a
reported average net win per device per day of $87 for the other casinos in the
Black Hawk/Central City market for the same period.
COLORADO GRANDE CASINO. The Company operates (through an 80% owned
subsidiary) the Colorado Grande Casino in Cripple Creek, which is located
approximately 45 miles from Colorado Springs and 75 miles from Pueblo. The
Colorado Grande Casino, which opened on October 11, 1991, is located at one of
the principal intersections in Cripple Creek and features more than 210 gaming
machines, 44 adjacent parking spaces, and a full service restaurant and bar.
Primarily as a result of a continual building of the customer base through a
slot club and player tracking system, along with monthly slot club promotions,
slot revenue at the Colorado Grande Casino increased approximately 24% during
fiscal year ended June 30, 1997 as compared to fiscal year ended June 30, 1996.
CANADIAN OPPORTUNITY. The Ontario provincial government has identified 44
locations throughout the Province of Ontario as sites for permanent charity
based gaming club operations. These permanent charity gaming clubs will replace
the current three-day roving Monte Carlo events and are being introduced as a
way to both stabilize funding to charities and to increase control, supervision,
and accountability in this gaming sector. The provincial government has had
substantial success in introducing other regulated gaming locations as
illustrated by the commercial casinos in Windsor and Niagara Falls, Canada. Each
permanent charity based gaming club location will be limited to a total of 150
video lottery terminals and 40 table games. The Province of Ontario anticipates
that the permanent charity based gaming clubs will be approximately one-tenth of
the size of a commercial casino such as Niagara Casino. Since its opening on
December 9, 1996, through July 31, 1997, the Niagara Casino has reported
revenues of $313 million. The permanent charity based gaming clubs will be
operated under management agreements with the provincial government, which will
provide the operator with 10% of video lottery terminal revenue, 5% of table
game, retail, and food and beverage revenue, and 10% of net income, as adjusted.
The provincial government has divided the locations into clusters of 5 or 6
locations per cluster with each to be operated under a single collective
management agreement and 8 stand alone locations that will be operated under
individual management agreements. Several of the clusters include locations in
the Toronto metropolitan area. The provincial government has indicated that no
operator will be awarded contracts for more than 25% of the total number of
locations.
3
<PAGE>
In January 1997, the Company entered into an agreement with Revenue
Properties Company (the "Anchor RPC JV") for the purpose of submitting a
proposal to operate permanent charity based casino operations in the Province of
Ontario. See "Business--Casinos--Canadian Opportunity." In April 1997, the
Anchor RPC JV submitted a proposal for the management agreements on all but one
of the clusters and two of the stand alone locations. On August 13, 1997, the
provincial government announced that, of the 39 original proposals received for
consideration, it had selected a "short list" of 13 proposals, which includes
the proposal submitted by the Anchor RPC JV. The provincial government expects
that some charity gaming clubs may be in operation by the end of 1997. There
can, however, be no assurance that Anchor will be successful in its effort to
secure management contracts or if successful, which locations, the number of
contracts, the time frame in which they might be awarded, or when the sites will
be operational, in Ontario, Canada. See "Risk Factors -- Risks of Pursuing New
Casino Gaming Operations."
ROUTE OPERATIONS
Anchor is one of the largest gaming machine route operators in Nevada with
801 gaming machines in 58 locations at June 30, 1997, up from 692 gaming
machines at 50 locations at June 30, 1996. The Company's gaming machine route
operations in Nevada involve the installation, operation, and service of gaming
machines (virtually all video poker machines) under space leases with retail
chains and under revenue participation agreements with local taverns and retail
stores, principally in the Las Vegas area. Management believes that its route
operation contracts provide the Company with a long-term, stable revenue source
and that its route has the highest revenue and profit per machine of any route
operation in the state of Nevada. The Company's revenues from route operations
totalled $33.5 million for the fiscal year ended June 30, 1997, an increase of
approximately 17% over fiscal year 1996.
In 1996, the Company extended its exclusive space lease agreement with
Smith's Food and Drug Centers, Inc. ("Smiths"), its largest route customer, for
an additional five years at current rates through 2010. At June 30, 1997, 716 of
the Company's 801 gaming machines in Nevada were located in or near Las Vegas,
which has been one of the fastest growing cities in the United States in recent
years. Anchor believes that its route operations will benefit from the continued
growth of the Las Vegas area, the associated growth of its existing customers in
that market, and the Company's continued installation of bill validators on its
gaming machines.
------------------------
Anchor Gaming, a Nevada corporation, maintains its corporate headquarters at
815 Pilot Road, Suite G, Las Vegas, Nevada 89119, and its telephone number is
(702) 896-7568.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by Selling Stockholders (1)
(2)................................................. 1,800,000 shares
Common Stock to be outstanding after this Offering
(3)................................................. 12,958,107 shares
Nasdaq National Market symbol........................ SLOT
</TABLE>
- ------------------------------
(1) Selling Stockholders are Stanley E. Fulton, who is selling 657,700 shares of
Common Stock; and Mrs. Elizabeth Fulton and the six Fulton children who are
collectively selling 1,142,300 shares of Common Stock.
(2) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(3) Excludes 1,069,950 shares of Common Stock issuable upon exercise of stock
options outstanding at September 15, 1997, of which 166,700 were then
exercisable and 196,575 will become exercisable on or before December 30,
1997. See "Risk Factors -- Shares Eligible for Future Sale."
RISK FACTORS
An investment in the Common Stock involves certain risks that a prospective
investor should carefully consider before investing in the Common Stock. See
"Risk Factors."
5
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data presented below as of and for the
Company's fiscal years ended June 30, 1993, 1994, 1995, 1996, and 1997 have been
derived from the audited consolidated financial statements of the Company. The
data set forth below are qualified in their entirety by, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the consolidated financial statements and the
related notes, and other financial data appearing elsewhere or incorporated by
reference in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------------------------------
1993 1994 (1) 1995 1996 1997
----------- ----------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Casino operations............................................ $ 3,896 $ 23,713 $ 56,184 $ 65,125 $ 69,223
Proprietary games............................................ 117 4,147 14,159 21,457 49,716
Route operations............................................. 25,018 26,123 25,818 28,651 33,509
Food and beverage............................................ 446 786 1,250 1,233 1,300
----------- ----------- --------- --------- ---------
Total revenues............................................. 29,477 54,769 97,411 116,466 153,749
Total costs and expenses....................................... 21,704 40,657 72,561 82,586 100,555
----------- ----------- --------- --------- ---------
Income from operations......................................... 7,773 14,112 24,850 33,881 53,194
Interest income................................................ 88 379 1,105 2,028 3,793
Interest expense............................................... (954) (1,314) (732) (429) (288)
Other income (expense) (2)..................................... 87 244 244 43 (22)
----------- ----------- --------- --------- ---------
Income before provision for income taxes....................... 6,994 13,421 25,467 35,523 56,677
Historical and pro forma provision for income taxes (3)........ 2,378 4,702 9,486 13,188 21,001
----------- ----------- --------- --------- ---------
Net income and pro forma net income (3)........................ $ 4,616 $ 8,719 $ 15,981 $ 22,335 $ 35,676
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Weighted average common and common equivalent shares
outstanding (4).............................................. 6,459 8,481 11,447 12,153 13,691
Earnings and pro forma earnings per common and common
equivalent share (3)......................................... $ 0.71 $ 1.03 $ 1.40 $ 1.84 $ 2.61
OTHER DATA:
EBITDA (5)..................................................... $ 9,088 $ 16,233 $ 28,065 $ 37,990 $ 61,992
Capital expenditures........................................... 5,142 17,921 7,834 27,916 38,108
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------
(IN
THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................................ $ 66,427
Total assets..................................................................................... 188,876
Long term notes payable, principal stockholder................................................... 2,800
Stockholders' equity............................................................................. 171,331
</TABLE>
- ------------------------------
(1) Reflects six months of operations at the Company's Colorado Central Station
Casino in Black Hawk, Colorado, which opened December 25, 1993, and five
months of proprietary games operations acquired in conjunction with the
Company's initial public offering in February 1994 (the "IPO").
(2) Other income (expense) consists of minority interest in earnings of
consolidated subsidiary, and other income (expense).
(3) A pro forma provision for federal income taxes (assuming a 34% effective tax
rate through fiscal 1994) has been calculated for all periods prior to the
IPO as if the principal subsidiaries of the Company had not elected to be
treated as S corporations during those periods.
(4) Weighted average shares outstanding are presented as if the reorganization
completed in conjunction with the Company's IPO took place July 1, 1992.
(5) EBITDA consists of income from operations plus depreciation and
amortization. EBITDA is not a measure of performance or financial condition
under generally accepted accounting principles, but is presented solely as
supplemental disclosure because the Company believes that it enhances the
understanding of the ability to service debt. EBITDA should not be
considered in isolation or as a substitute for other measures of financial
performance or liquidity under generally accepted accounting principles.
6
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS REFER TO
EVENTS THAT COULD OCCUR IN THE FUTURE OR MAY BE IDENTIFIED BY THE USE OF WORDS
SUCH AS "INTEND," "PLAN," "BELIEVE," CORRELATIVE WORDS, AND OTHER EXPRESSIONS
INDICATING THAT FUTURE EVENTS ARE CONTEMPLATED. SUCH STATEMENTS ARE SUBJECT TO
INHERENT RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN OF
THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. IN ADDITION
TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS.
RISKS OF PROPRIETARY GAMES
The Company places its proprietary games in casinos at no cost to the
casinos under short-term arrangements, making these games susceptible to
replacement due to pressure from competitors, changes in economic conditions,
obsolescence, and declining popularity. Anchor intends to maintain and expand
the number of installed proprietary games through enhancement of existing games,
introduction of new games, and customer service, but there can be no assurance
that these efforts will be successful.
Introduction of new proprietary games involves significant risks, including
whether the Company will be able to place its games with casinos, the economic
terms on which casinos will accept the machines, the popularity of the games
with gaming patrons, and whether a successful game can maintain its popularity
over the long term. If the Company is not successful in introducing new games,
the effects on Anchor could be adverse.
Anchor has filed trademark and patent applications to protect its
intellectual property rights in certain of its trademarks and innovations on
certain of its proprietary games, respectively. At this time, however, the
United States Patent and Trademark Office has not acted upon all of these
applications. There can be no assurance that the pending patent or trademark
applications will actually issue as patents or trademark registrations or that
any of these rights will not be infringed by others. Certain of the Company's
games, including Silver Strike, Totem Pole, and Clear Winner, do not have
independent protection of the game itself, and it is possible that competitors
could produce a similar game without violating any legal rights of the Company.
Anchor intends to promote aggressively its trademarks to build goodwill and
customer loyalty. In addition, Anchor intends to improve and add innovations to
certain of its games, which may be subject to legal protection. There can be no
assurance, however, that the Company will be successful in these efforts, that
innovations will be subject to legal protection, or that the innovations will
give a competitive advantage to the Company.
Anchor also derives revenues from the sale of souvenir tokens that are paid
out by Silver Strike machines. The primary raw material for the tokens is
silver, the price of which is subject to wide fluctuations. As silver prices
rise, the Company may be unable to pass price increases through to its casino
customers.
COMPETITION
PROPRIETARY GAMES. Intense competition characterizes the market for
proprietary games. Competitors in the game industry include manufacturers of
gaming devices and other companies marketing gaming products and conversion
kits, which compete directly with the Company for the limited gaming spaces
available at casinos. The popularity of any of the Company's games may decline
over time as consumer preferences change or as new, competing games are
introduced. As a result, Anchor must continually anticipate and adapt its
products to consumer preferences in order to maximize the economics of the game
to the Company. There can be no assurance, however, that Anchor will continue to
be successful in developing and marketing its products. If the Company fails to
develop games that achieve market
7
<PAGE>
acceptance or if existing games become obsolete due to the introduction of
popular games by Anchor's competitors the effects on Anchor could be material
and adverse.
Anchor's strategy of creating recurring revenues from its proprietary games
by placing the games in casinos under a royalty, revenue participation, or
similar agreements involves a departure from the traditional practice of casinos
of owning or leasing gaming devices. To the extent that casinos are reluctant to
enter into arrangements that generate recurring revenues for suppliers of casino
games, the market for Anchor's proprietary games could be limited. Competition
within the market for games that generate recurring revenues could intensify as
other suppliers of gaming devices enter this market or offer competitive
products or terms.
COLORADO CASINOS. Intense competition also characterizes the Black
Hawk/Central City and Cripple Creek markets. Since limited stakes gaming was
instituted in Colorado in 1991, a number of Colorado casinos have ceased
operations and others have filed for protection under Chapter 11 of the
Bankruptcy Code. Others have closed temporarily or reduced the number of
employees, and many casinos may not be operating profitably. Several proposals
have been made to open new casinos or to expand existing casinos in Black Hawk,
some of which have been abandoned or modified. Two casinos are being developed
in Black Hawk located across the intersection from the Company's Colorado
Central Station Casino. Casino America and Nevada Gold & Casinos have commenced
construction of a casino scheduled to open in early 1999, which facility is
expected to include 1,100 slot machines, 24 table games, and a 1,000 car parking
garage. Riviera Holdings Corporation has announced that it plans to develop a
gaming facility with 1,000 slot machines, 14 table games, and a 500 space
covered parking garage, scheduled to open in the Spring of 1999. A joint venture
between Black Hawk Gaming & Development Company, Inc. and Jacobs Entertainment
Ltd. is constructing a gaming facility located near Colorado Central Station.
The facility is scheduled to be completed in June 1998 and is expected to
include 800 slot machines, 20 table games, and 500 parking spaces. In addition,
construction is proceeding on a third major intersection off State Highway 119,
which will provide access directly to one of the new casinos from State Highway
119, which is the primary access from the Denver metropolitan area. From time to
time other casino companies have publicly expressed an interest in pursuing
development or expansion in the Black Hawk/Central City market, and proposals to
develop competitive projects are ongoing.
It appears that national, regional, state, and local competition for the
casino gaming market in general will remain extremely high during the
foreseeable future, as casino gaming activities expand in traditional gaming
states and in new jurisdictions. In addition, passage of the Indian Gaming
Regulatory Act in 1988 has led to rapid increases in Native American gaming
operations, and the Company's two casinos may compete for customers with casinos
located on Indian reservations in southwestern Colorado. The Company expects
many competitors to enter new jurisdictions that authorize gaming, some of whom
may have greater financial and other resources than the Company. Such
proliferation of gaming activities could adversely affect the Company's
business. In particular, the legalization of casino gaming in or near any
metropolitan area, such as Denver, Colorado, from which the Company draws
customers would have a material adverse effect on the Company's business. The
Company believes, however, that proliferation of gaming activities into new
jurisdictions presents an opportunity for it to expand its proprietary games
operations.
ROUTE OPERATIONS. Gaming machines and gaming of all types are available in
Nevada casinos and in restricted gaming locations similar to those in which the
Company operates gaming machines, and all of these gaming establishments compete
directly or indirectly with Anchor's route operations. In addition, Anchor is
subject to substantial competition for the operation of gaming machines in
approved locations from numerous small gaming machine route operators and some
large operators, located principally in Las Vegas and Reno, Nevada, and their
surrounding areas. The principal methods of competition for gaming machine
locations are the lease, sublease, license, or revenue sharing terms, the
service provided by the route operator, the reputation of the route operator,
and the financial strength of the route operator. As existing space lease and
revenue participation arrangements expire, competition for renewals can be
8
<PAGE>
expected to increase the amounts payable to location owners as compared to
amounts payable under existing agreements.
RISKS OF PURSUING NEW CASINO GAMING OPPORTUNITIES
The Company is actively seeking to expand its casino operations into
jurisdictions that have legalized or are expected to legalize gaming in the
future. There can be no assurance, however, that the Company will be able to
identify suitable casino projects in which to invest or will be able to complete
any such project as scheduled or contemplated. The Company's ability to complete
and operate new casino projects will be dependent on a number of factors, many
of which are beyond Anchor's control, including identifying suitable investment
partners (if appropriate), negotiating acceptable terms, securing required
state, foreign, and local licenses, permits, and approvals, securing adequate
financing on acceptable terms, identifying and securing suitable locations
(which management expects will be limited and in high demand), voter and other
political approvals, demographic trends, and consumers' gaming preferences. As a
result, there can be no assurance that the Company will be able to develop new
or expand its current casino operations. In particular, there can be no
assurance that Anchor will be successful in its effort to secure management
contracts or multiple site contracts or if successful, which locations, the
number of contracts, the time frame in which they might be awarded, or when the
sites will be operational, in Ontario, Canada. See "Business--Casinos--Canadian
Opportunity." In addition, the Company may incur costs in connection with
pursuing new gaming opportunities that it cannot recover and may be required to
expense certain of these costs, which may negatively affect the Company's
reported operating performance for the periods during which such costs are
expensed.
RISKS OF DEPENDENCE ON SUPPLIERS
The Company utilizes outside vendors, some of which are competitors of the
Company, to manufacture a significant portion of its proprietary game machines
and parts. An inability to obtain gaming machines and components, production
parts, and replacement parts on reasonable terms or on a timely basis could have
an adverse effect on Anchor.
GAMING REGULATIONS AND TAXES
The Company's operations are subject to extensive state and local regulation
and taxation in Nevada, Colorado, and other jurisdictions in which Anchor
operates, and any future activities in additional jurisdictions will be
similarly regulated and taxed. State and local authorities require various
licenses, permits, and approvals to be held by the Company, and these
authorities may, among other things, revoke the license of any entity licensed
as a gaming corporation, the registration of any entity registered as a holding
company of a gaming corporation, or the license of any individual licensed as an
officer, director, control person, employee, or stockholder of a licensed or
registered entity. Gaming licenses and related approvals are deemed to be
privileges under Nevada and Colorado law and the laws of other jurisdictions,
and no assurances can be given that existing licenses will not be revoked.
Regulatory changes or increases in applicable taxes or fees in Nevada or
Colorado or the laws of other jurisdictions in which the Company operates could
have a material adverse effect on the Company. There can be no assurance that
regulations adopted or taxes imposed by Nevada, Colorado, or other jurisdictions
will not have a material adverse effect on the Company. See "Regulation."
Colorado law requires statewide voter approval of an amendment to the State
Constitution for any expansion of limited gaming into additional locations and,
depending on the authorization approved by the statewide vote, requires, in
addition, voter approval from the locality in question. In 1994, Colorado voters
defeated by a margin of 93% to 7% a proposal to permit gaming in Manitou Springs
(located near Colorado Springs and Cripple Creek) and slot machines in airports.
On November 5, 1996, Colorado voters defeated by a margin of 69% to 31% a
proposal to allow gaming in the community of Trinidad, located on the New Mexico
border. Recently, the state legislature passed, but the Governor vetoed, a bill
9
<PAGE>
that would have permitted video lottery terminals at dog and horse racetracks
under certain terms and conditions. Several cities within Colorado have active
citizens' lobbies that were able to place gaming initiatives on recent statewide
ballots. Although these initiatives have failed, new initiatives could be
introduced on future statewide ballots to allow expansion of gaming in Colorado
or prohibit gaming in the particular markets in Colorado where the Company
operates. Future initiatives, if passed, could significantly increase the
competition for gaming customers, thereby adversely affecting the Company's
operations in Colorado. Additionally, there can be no assurance that future
legislation will not be enacted that would impose additional restrictions or
prohibitions on, or assess additional fees with respect to, the Company's
business.
Each of the Company's proprietary games must be approved and licensed in
each jurisdiction in which it is placed. The Company must still obtain approvals
for certain of its games in certain gaming jurisdictions before it can fill all
of its orders to place machines. Obtaining required licenses can be time
consuming and costly and there can be no assurance that any game will be
successfully licensed in any jurisdiction.
Any beneficial holder of the Common Stock may be subject to investigation by
gaming authorities in Nevada, Colorado, and other jurisdictions in which Anchor
does business if such authorities have reason to believe that such ownership may
be inconsistent with a state's gaming policies. Persons who acquire beneficial
ownership of more than certain designated percentages of the Common Stock may be
subject to certain reporting and qualification procedures. The Company's
Articles of Incorporation provide that all transfers of voting securities are
subject to the regulations of each regulatory body to which the Company's
activities are subject and provide for a mandatory repurchase of Common Stock if
a stockholder is found unsuitable. In addition, changes in control of the
Company and certain other corporate transactions may not be effected without the
prior approval of gaming authorities in Nevada, Colorado, and other
jurisdictions in which the Company does business. Such provisions could
adversely affect the marketability of the Common Stock or prevent certain
corporate transactions, including mergers or other business combinations. See
"Regulation."
In August 1996, the United States Congress passed legislation creating the
National Gambling Impact and Policy Commission to conduct a comprehensive study
of all matters relating to the economic and social impact of gaming in the
United States. The legislation provides that, not later than two years after the
enactment of such legislation, the commission must issue a report to the
President and to Congress containing its findings and conclusions, together with
recommendations for legislation and administrative actions. Any such
recommendations, if enacted into law, could adversely impact the gaming industry
and have a material adverse effect on the Company's business or results of
operations. The Company is unable to predict whether this study will result in
legislation that would impose additional regulations on gaming industry
operators, including the Company, or whether such legislation, if any, would
have a material adverse effect on the Company. Additionally, from time to time,
certain federal legislators have proposed the imposition of a federal tax on
gaming revenues. Any such tax could have a material adverse effect on the
Company's financial condition or results of operations.
RISKS OF EXISTING COLORADO OPERATIONS
ACCESS TO BLACK HAWK AND CRIPPLE CREEK. The cities of Black Hawk and
Cripple Creek are located in the Colorado Rockies and each is serviced by
winding mountain roads that require extremely cautious driving, especially in
bad weather. These roads also have tunnels that are subject to closure.
Congestion on the roads leading into Black Hawk and Cripple Creek is not
uncommon during the peak summer season, holidays, and other times of the year,
and such congestion may discourage potential customers from traveling to the
Company's casinos. In addition, concerns about the overall availability of
convenient parking in Black Hawk and, to a lesser extent, Cripple Creek may
discourage some potential customers. Further, Black Hawk and, to a lesser
extent, Cripple Creek have experienced unanticipated demands for their municipal
systems, including water and sewage treatment facilities. Increased levels of
activity in the
10
<PAGE>
area may exacerbate old or pose new municipal and environmental problems, the
costs of which could be imposed on the gaming industry and in part by the
Company.
ENVIRONMENTAL CONSIDERATIONS. The Colorado Central Station Casino is
located in an area that has been designated by the Environmental Protection
Agency (the "EPA") as a superfund site on the National Priorities List, known as
the Central City-Clear Creek Superfund Site (the "Site"), as a result of
contamination from historic mining activity in the area. The EPA is entitled to
proceed against owners and operators of properties located within the Site for
remediation and response costs associated with their properties and with the
entire Site. The Colorado Central Station Casino is located within the drainage
basin of North Clear Creek and is therefore subject to potentially contaminated
surface and ground water from upstream mining-related sources. Soil and ground
water samples on the Site indicate that several contaminants exist in
concentrations exceeding drinking water standards. Records relating to
historical uses of the Site are uncertain as to whether mining actually occurred
below the Company's property. Records do indicate, however, that an ore loading
dock for a railroad depot was once located on adjacent property, and railroad
tracks were present on the Company's property. Management is not aware of any
environmental issues associated with these activities.
DEPENDENCE ON KEY PERSONNEL
The success of Anchor is largely dependent on the efforts and skills of
Stanley E. Fulton, its Chairman of the Board, and other key officers and
employees of Anchor. The loss of Mr. Fulton's or such other key officers' or
employees' services could have a material adverse effect on Anchor. The
expansion of Anchor's businesses may require additional managers with gaming
industry experience, as well as additional skilled employees. A shortage of
skilled management personnel exists in the gaming industry, which may make it
more difficult and expensive to attract and retain qualified managers and
employees. In addition, some of the Company's key employees perform their
services under contracts that do not contain covenants not to compete with the
Company, and it is therefore possible that competitors could attempt to hire
certain of the Company's key employees. One of the Company's key game
development employees has a contract that allows him to pursue certain gaming
related businesses for an entity not controlled by Anchor, and it is therefore
possible that this key employee could devote substantial attention to
enterprises other than Anchor. See "Management -- Employment Contracts,
Termination of Employment, and Change-in-Control Arrangements."
CONTROL OF THE COMPANY
Upon completion of this Offering, the officers and directors of the Company
and members of their respective families will own beneficially approximately
40.5% of the outstanding Common Stock (38.4% if the Underwriters' over-allotment
option is exercised in full). The ability to vote these shares gives such
persons the ability to exert substantial influence over any matter coming to a
vote of stockholders of the Company, including the election of directors and
certain mergers, asset sales, or other major corporate transactions affecting
the Company. All six of Mr. Fulton's children and a third party have granted him
an irrevocable proxy expiring on December 31, 1998 to vote their shares of
Common Stock. As a result, Mr. Fulton will have voting control of 39.2% of the
Common Stock to be outstanding after this Offering. Such voting power, together
with certain anti-takeover provisions included in the Company's Articles of
Incorporation and Bylaws and a Shareholder Rights Plan, could have the effect of
delaying or discouraging an unsolicited takeover of the Company. See "Principal
and Selling Stockholders"; "Description of Capital Stock -- Rights Plan"; and
"Description of Capital Stock -- Certain Provisions Relating to Changes in
Control."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 12,958,107 shares of
Common Stock outstanding (assuming no exercise of outstanding options and
warrants). The 1,800,000 shares of Common
11
<PAGE>
Stock sold in this Offering will be freely tradable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), except for shares purchased by affiliates of the Company.
Virtually all shares of Common Stock outstanding prior to this Offering are
freely tradeable or generally may be freely sold in "brokers transactions" under
Rule 144 under the Securities Act by the holders thereof that have not been
"affiliates" of the Company for a period of 90 days. At September 15, 1997 there
were outstanding options to purchase 1,069,950 shares of Common Stock, of which
166,700 were exercisable at September 15, 1997 and 196,575 of which will become
exercisable on or before December 30, 1997. In connection with this Offering,
the Selling Stockholders have agreed not to sell any Common Stock for a period
of 90 days following the date of the final Prospectus without the prior written
consent of the Representatives of the Underwriters. See "Underwriting." The sale
or availability for sale of substantial amounts of Common Stock in the public
market after this Offering could adversely affect the market price of the Common
Stock.
12
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock was listed on the Nasdaq National Market on January 28,
1994 and trades under the symbol "SLOT." The following table sets forth the
range of high and low closing prices per share of the Common Stock on the Nasdaq
National Market for the indicated periods.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
------------------
HIGH LOW
------- -------
<S> <C> <C>
YEAR ENDED JUNE 30, 1995
First quarter................................................................................. $19 1/2 $11 1/4
Second quarter................................................................................ 19 1/4 14 1/4
Third quarter................................................................................. 19 15 1/4
Fourth quarter................................................................................ 23 5/8 15 1/4
<CAPTION>
YEAR ENDED JUNE 30, 1996 HIGH LOW
------- -------
<S> <C> <C>
First quarter................................................................................. $26 1/2 $20 1/2
Second quarter................................................................................ 25 1/4 18 7/8
Third quarter................................................................................. 32 1/4 21 3/4
Fourth quarter................................................................................ 69 32 3/4
<CAPTION>
YEAR ENDED JUNE 30, 1997 HIGH LOW
------- -------
<S> <C> <C>
First quarter................................................................................. $68 3/4 $50 1/2
Second quarter................................................................................ 64 1/2 30 1/8
Third quarter................................................................................. 40 3/4 27 7/8
Fourth quarter................................................................................ 47 3/4 25
<CAPTION>
YEAR ENDED JUNE 30, 1998 HIGH LOW
------- -------
<S> <C> <C>
First quarter (through September 15, 1997).................................................... $85 5/8 $47 1/4
</TABLE>
On September 15, 1997, the last reported sale price of the Common Stock on
the Nasdaq National Market was $84.50 per share, and there were approximately
5,000 beneficial holders of the Common Stock.
DIVIDEND POLICY
The Company has not declared any dividends since the time of the IPO. The
board of directors of the Company intends to retain any earnings of the Company
to support operations and to finance expansion and does not intend to pay cash
dividends on the Common Stock in the foreseeable future. The Company is a party
to a revolving credit agreement with a bank that prohibits the payment of
dividends. Subject to contractual restrictions, any future determinations as to
the payment of dividends will be at the discretion of the board of directors of
the Company and will depend on the Company's financial condition, results of
operations, capital requirements, and such other factors as the board of
directors of the Company deems relevant.
13
<PAGE>
SELECTED FINANCIAL AND OPERATING INFORMATION
The following selected financial and operating information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and related
notes included elsewhere or incorporated by reference in this Prospectus. The
income statement and balance sheet data for each of the five fiscal years ended
June 30, 1997 are derived from the audited consolidated financial statements of
the Company.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------------------------
1993 1994 (1) 1995 1996 1997
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Casino operations........................................... $ 3,896 $ 23,713 $ 56,184 $ 65,125 $ 69,223
Proprietary games........................................... 117 4,147 14,159 21,457 49,716
Route operations............................................ 25,018 26,123 25,818 28,651 33,509
Food and beverage........................................... 446 786 1,250 1,233 1,300
--------- --------- --------- --------- ---------
Total revenues............................................ 29,477 54,769 97,411 116,466 153,749
Total costs and expenses:
Casino operations........................................... 1,326 8,199 21,500 26,830 29,100
Proprietary games........................................... 141 3,047 9,851 12,114 11,039
Route operations............................................ 14,869 15,416 15,659 17,158 19,905
Food and beverage........................................... 478 768 1,387 1,300 1,432
Selling, general, and administrative........................ 3,573 10,375 20,949 21,074 28,164
Preopening costs............................................ -- 731 -- -- --
Project cost write-downs.................................... -- -- -- -- 2,117
Depreciation and amortization............................... 1,317 2,121 3,215 4,110 8,798
--------- --------- --------- --------- ---------
Total costs and expenses.................................. 21,704 40,657 72,561 82,586 100,555
--------- --------- --------- --------- ---------
Income from operations........................................ 7,773 14,112 24,850 33,881 53,194
Interest income............................................... 88 379 1,105 2,028 3,793
Interest expense.............................................. (954) (1,314) (732) (429) (288)
Other income (expense) (2).................................... 87 244 244 43 (22)
--------- --------- --------- --------- ---------
Income before provision for income taxes...................... 6,994 13,421 25,467 35,523 56,677
Historical and pro forma provision for income taxes (3)....... 2,378 4,702 9,486 13,188 21,001
--------- --------- --------- --------- ---------
Net income and pro forma net income (3)....................... $ 4,616 $ 8,719 $ 15,981 $ 22,335 $ 35,676
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common and common equivalent shares
outstanding (4)............................................. 6,459 8,481 11,447 12,153 13,691
Earnings and pro forma earnings per common and common
equivalent share (3)........................................ $ 0.71 $ 1.03 $ 1.40 $ 1.84 $ 2.61
OTHER DATA:
EBITDA (5).................................................... $ 9,088 $ 16,233 $ 28,065 $ 37,990 $ 61,992
Capital expenditures.......................................... 5,142 17,921 7,834 27,916 38,108
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
-----------------------------------------------------
1993 1994 (1) 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................... $ 3,872 $ 10,472 $ 26,132 $ 78,113 $ 66,427
Total assets.................................................. 22,576 58,903 79,266 162,312 188,876
Long term notes payable, principal stockholder................ 17,243 6,927 5,989 3,650 2,800
Stockholders' equity (6)...................................... 3,840 47,001 64,832 146,307 171,331
</TABLE>
- ------------------------------
(1) Reflects six months of operations at the Company's Colorado Central Station
Casino in Black Hawk, Colorado, which opened December 25, 1993, and five
months of proprietary games operations acquired in conjunction with the
Company's IPO.
(2) Other income (expense) consists of minority interest in earnings of
consolidated subsidiary, and other income (expense).
14
<PAGE>
(3) A pro forma provision for federal income taxes (assuming a 34% effective tax
rate through fiscal 1994) has been calculated for all periods prior to the
IPO as if the principal subsidiaries of the Company had not elected to be
treated as S corporations during those periods.
(4) Weighted average shares outstanding are presented as if the reorganization
completed in conjunction with the Company's IPO took place July 1, 1992.
(5) EBITDA consists of income from operations plus depreciation and
amortization. EBITDA is not a measure of performance or financial condition
under generally accepted accounting principles, but is presented solely as
supplemental disclosure because the Company believes that it enhances the
understanding of the ability to service debt. EBITDA should not be
considered in isolation or as a substitute for other measures of financial
performance or liquidity under generally accepted accounting principles.
(6) Because the principal subsidiaries of the Company elected to be treated as S
corporations prior to the Company's IPO, a substantial portion of the
Company's net income prior to the IPO was distributed to its stockholders.
Subsequent to its IPO, earnings have been retained to support operations and
to finance expansion.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In February 1994, Anchor completed its IPO of 3,162,500 shares of Common
Stock at a price of $12 per share. Simultaneously with the closing of the IPO,
Anchor became the holding company for its current subsidiaries, Anchor Coin,
Colorado Grande Enterprises, Inc., C.G. Investments, Inc., and D D Stud, Inc.,
each of which had been operated under different ownership structures controlled
primarily by Stanley E. Fulton, the Chairman of the Board, Chief Executive
Officer, and acting Chief Financial Officer of Anchor. Also at the time of the
IPO, the Company acquired all of the beneficial ownership of Global Gaming
Products, L.L.C. and certain related assets from Global Distributors, Inc. (the
"Acquisition"), which were primarily involved in the distribution of the
proprietary game Silver Strike. Stanley E. Fulton also owned 50% of Global
Gaming Products, L.L.C. prior to the Acquisition. The financial position and
operating results of Colorado Grande Enterprises, Inc. are included in the
consolidated financial statements as an 80% consolidated subsidiary.
On April 23, 1996, the Company completed a secondary offering of 2.3 million
shares of Common Stock at a price of $37 per share. 1.55 million of these shares
were sold by the Company (the "Secondary Offering") and the remaining 750,000
shares were sold by selling stockholders. Net proceeds to the Company from the
Secondary Offering were $53.9 million.
The following table sets forth the percentage of Anchor's total revenues
attributable to casino operations, proprietary games operations, gaming machine
route operations, and food and beverage operations during the fiscal years ended
June 30, 1995, 1996, and 1997. The growth in proprietary games revenue as a
percentage of total revenues is attributable primarily to the Company's
introduction of the new proprietary game Wheel of Gold, which began generating
revenue in the third quarter of fiscal 1996 and to a lesser extent, the
commencement of the Company's strategic alliance with IGT during the second half
of fiscal 1997. The Company's food and beverage revenues are derived primarily
from its casino operations and, to a lesser extent, from its route operations.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
SOURCES OF REVENUES:
Casino operations....................................................... 57.7% 55.9% 45.0%
Proprietary games operations............................................ 14.5 18.4 32.4
Route operations........................................................ 26.5 24.6 21.8
Food and beverage operations............................................ 1.3 1.1 0.8
----- ----- -----
Total revenues...................................................... 100.0% 100.0% 100.0%
----- ----- -----
----- ----- -----
</TABLE>
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
REVENUES. Total revenues were $153.7 million for the fiscal year ended June
30, 1997, an increase of $37.2 million or 31.9% from $116.5 million for the
fiscal year ended June 30, 1996.
Revenues from casino operations were $69.2 million for the fiscal year ended
June 30, 1997, an increase of $4.1 million or 6.3% from $65.1 million for the
fiscal year ended June 30, 1996. The increase is primarily due to increased
revenues at the Colorado Central Station Casino and, to a lesser extent, due to
increased revenues at the Colorado Grande Casino.
Revenues from proprietary games operations were $49.7 million for the fiscal
year ended June 30, 1997, an increase of $28.2 million or 131.2% from $21.5
million for the fiscal year ended June 30, 1996. The increase is primarily due
to revenues generated from the Company's proprietary game, Wheel of
16
<PAGE>
Gold, introduced December 29, 1995, as well as revenues from the Company's
strategic alliance with IGT and, to a lesser extent, from its newest proprietary
game, Totem Pole, and increased revenues generated from the proprietary game
Clear Winner. These increases were offset to some extent by decreased revenues
generated from the proprietary game Silver Strike.
Revenues from route operations were $33.5 million for the fiscal year ended
June 30, 1997, an increase of $4.8 million or 16.7% from $28.7 million for the
fiscal year ended June 30, 1996. Machines on route increased to 801 at June 30,
1997, from 692 at June 30, 1996, while average machines on route during fiscal
1997 were 106 machines greater than fiscal 1996.
COSTS AND EXPENSES. Total costs and expenses were $100.6 million for the
fiscal year ended June 30, 1997, an increase of $18.0 million or 21.8% from
$82.6 million for the fiscal year ended June 30, 1996. Total costs and expenses
as a percentage of total revenues decreased to 65.5% during fiscal 1997 from
70.9% during fiscal 1996.
Costs and expenses of casino operations were $29.1 million for the fiscal
year ended June 30, 1997, an increase of $2.3 million or 8.6% from $26.8 million
for the fiscal year ended June 30, 1996. Casino costs and expenses as a
percentage of casino revenue increased to 42.0% during fiscal year 1997 from
41.2% during fiscal year 1996. The increase in casino costs and expenses was
primarily due to increased gaming taxes and promotions at both of the Company's
casinos.
Costs and expenses of proprietary games operations were $11.0 million for
the fiscal year ended June 30, 1997, a decrease of $1.1 million or 9.1% from
$12.1 million for the fiscal year ended June 30, 1996. Prior to the introduction
of Wheel of Gold, most of the proprietary games operations' costs were
associated with the production of Silver Strike tokens. Costs and expenses of
proprietary games operations decreased primarily due to a decrease in Silver
Strike token sales in fiscal year 1997 compared to fiscal year 1996. Proprietary
games costs and expenses as a percentage of proprietary games revenues decreased
to 22.1% during fiscal year 1997 from 56.3% during fiscal year 1996. The
decrease in proprietary games costs and expenses as a percentage of revenue is a
result of increased revenues from the Company's newer proprietary games, which
incur less costs and expenses as a percentage of revenue than the Company's
Silver Strike game, which previously accounted for most of the Company's
proprietary games revenue.
Costs and expenses of route operations were $19.9 million for the fiscal
year ended June 30, 1997, an increase of $2.7 million or 15.7% from $17.2
million for the fiscal year ended June 30, 1996. Costs and expenses of route
operations as a percentage of route revenue remained fairly constant at 59.4%
during fiscal year 1997 compared to 59.9% during fiscal year 1996. The increase
in route costs and expenses was primarily due to increased location costs and,
to a lesser extent, increased direct payroll costs, both related to increased
machines on route.
Selling, general, and administrative ("SG&A") expenses were $28.2 million
for the fiscal year ended June 30, 1997, an increase of $7.1 million or 33.7%
from $21.1 million for the fiscal year ended June 30, 1996. SG&A expenses as a
percentage of total revenue remained fairly constant at 18.4% during fiscal year
1997 compared to 18.1% during fiscal year 1996. The increase in total SG&A
expenses is primarily due to increased expenses in the Company's proprietary
games operations of approximately $4.7 million primarily due to increased
research, development, and licensing costs and an increase in SG&A expenses at
the Colorado Central Station Casino of approximately $2.0 million.
In November 1996, the Company announced it was re-evaluating the scope and
nature of its proposed addition of a new casino across the street from the
Colorado Central Station Casino. During the fourth quarter of fiscal year 1997,
the Company determined it was necessary to recognize a project cost write-down
of $2.1 million. The project costs were specifically related to architectural
fees, building design costs, and deferred rent that were determined to have no
future benefit.
Depreciation and amortization expense was $8.8 million for the fiscal year
ended June 30, 1997, an increase of $4.7 million or 114.6% from $4.1 million for
the fiscal year ended June 30, 1996. This increase
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is primarily due to increased depreciation and amortization expense incurred in
the Company's proprietary games operations.
INCOME FROM OPERATIONS. As a result of the factors discussed above, income
from operations was $53.2 million for the fiscal year ended June 30, 1997, an
increase of $19.3 million or 56.9% from $33.9 million for the fiscal year ended
June 30, 1996. As a percentage of total revenues, income from operations
increased to 34.6% during fiscal year 1997 from 29.1% during fiscal year 1996.
INTEREST INCOME. Interest income was $3.8 million for the fiscal year ended
June 30, 1997, an increase of $1.8 million or 90.0% from $2.0 million for the
fiscal year ended June 30, 1996. The increase is due to increased short-term
investments resulting from an increase in working capital generated from
operations as well as cash invested from the Secondary Offering.
INTEREST EXPENSE. Interest expense was $288,000 for the fiscal year ended
June 30, 1997, a decrease of $141,000 or 32.9% from $429,000 for the fiscal year
ended June 30, 1996. The decrease is due to reduced average notes payable during
fiscal year 1997 as compared to fiscal year 1996.
NET INCOME. As a result of the factors discussed above, net income was $35.7
million for the fiscal year ended June 30, 1997, an increase of $13.4 million or
60.1% from $22.3 million for the fiscal year ended June 30, 1996.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
REVENUES. Total revenues were $116.5 million for the fiscal year ended June
30, 1996, an increase of $19.1 million or 19.6% from $97.4 million for the
fiscal year ended June 30, 1995.
Revenues from casino operations were $65.1 million for the fiscal year ended
June 30, 1996, an increase of $8.9 million or 15.8% from $56.2 million for the
fiscal year ended June 30, 1995. The increase is primarily due to increased
revenue at the Colorado Central Station Casino and, to a lesser extent, due to
increased revenues at the Colorado Grande Casino.
Revenues from proprietary games operations were $21.5 million for the fiscal
year ended June 30, 1996, an increase of $7.3 million or 51.4% from $14.2
million for the fiscal year ended June 30, 1995. The increase is primarily due
to revenues generated from the Company's proprietary game, Wheel of Gold,
introduced December 29, 1995, as well as increased revenues generated from the
proprietary games Clear Winner and Silver Strike.
Revenues from route operations were $28.7 million for the fiscal year ended
June 30, 1996, an increase of $2.9 million or 11.2% from $25.8 million for the
fiscal year ended June 30, 1995. Machines on route increased to 692 at June 30,
1996, from 606 at June 30, 1995, while average machines on route during fiscal
year 1996 were 70 machines greater than fiscal year 1995.
COSTS AND EXPENSES. Total costs and expenses were $82.6 million for the
fiscal year ended June 30, 1996, an increase of $10.0 million or 13.8% from
$72.6 million for the fiscal year ended June 30, 1995. Total costs and expenses
as a percentage of total revenues decreased to 70.9% during fiscal 1996 from
74.5% during fiscal 1995.
Costs and expenses of casino operations were $26.8 million for the fiscal
year ended June 30, 1996, an increase of $5.3 million or 24.7% from $21.5
million for the fiscal year ended June 30, 1995. Casino costs and expenses as a
percentage of casino revenue increased to 41.2% during fiscal year 1996 from
38.3% during fiscal year 1995. The increase in casino costs and expenses was
primarily due to increased gaming taxes, direct payroll, and promotions at both
of the Company's casinos.
Costs and expenses of proprietary games operations were $12.1 million for
the fiscal year ended June 30, 1996, an increase of $2.2 million or 22.2% from
$9.9 million for the fiscal year ended June 30, 1995. Proprietary games costs
and expenses as a percentage of proprietary games revenues decreased to
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56.3% during fiscal year 1996 from 69.7% during fiscal year 1995. The decrease
in proprietary games costs as a percentage of revenue is a result of the
introduction during fiscal year 1996 of Wheel of Gold which incurs less costs
and expenses as a percentage of revenue than the Company's other proprietary
games.
Costs and expenses of route operations were $17.2 million for the fiscal
year ended June 30, 1996, an increase of $1.5 million or 9.6% from $15.7 million
for the fiscal year ended June 30, 1995. Costs and expenses of route operations
as a percentage of route revenue decreased to 59.9% during fiscal year 1996 from
60.9% during fiscal year 1995. The increase in route costs and expenses was
primarily due to increased location costs, related to increased machines on
route and, to a lesser extent, increased direct payroll costs.
SG&A expenses were $21.1 million for the fiscal year ended June 30, 1996, an
increase of $125,000 or 0.6% from $20.9 million for the fiscal year ended June
30, 1995. SG&A expenses as a percentage of total revenue decreased to 18.1%
during fiscal year 1996 from 21.5% during fiscal year 1995. The increase in SG&A
expenses is primarily due to increased expenses at the Company's Colorado
Central Station Casino of approximately $1.2 million and an increase in SG&A
expenses in the Company's proprietary games operations of approximately
$828,000, mostly offset by a reduction in corporate development costs. The
Company incurred $269,000 in development costs during the fiscal year ended June
30, 1996 as compared to approximately $2.1 million during the fiscal year ended
June 30, 1995.
Depreciation and amortization expense was $4.1 million for the fiscal year
ended June 30, 1996, an increase of $895,000 or 28.0% from $3.2 million for the
fiscal year ended June 30, 1995. The increase is primarily due to increased
depreciation and amortization expense incurred in the Company's proprietary
games operations.
INCOME FROM OPERATIONS. As a result of the factors discussed above, income
from operations was $33.9 million for the fiscal year ended June 30, 1996, an
increase of $9.0 million or 36.1% from $24.9 million for the fiscal year ended
June 30, 1995. As a percentage of total revenues, income from operations
increased to 29.1% during fiscal year 1996 from 25.6% during fiscal year 1995.
INTEREST INCOME. Interest income was $2.0 million for the fiscal year ended
June 30, 1996, an increase of $923,000 or 83.9% from $1.1 million for the fiscal
year ended June 30, 1995. The increase is due to increased short-term
investments resulting from an increase in working capital generated from
operations as well as cash invested from the Secondary Offering.
INTEREST EXPENSE. Interest expense was $429,000 for the fiscal year ended
June 30, 1996, a decrease of $303,000 or 41.4% from $732,000 for the fiscal year
ended June 30, 1995. The decrease is due to reduced average notes payable during
fiscal year 1996 as compared to fiscal year 1995.
NET INCOME. As a result of the factors discussed above, net income was $22.3
million for the fiscal year ended June 30, 1996, an increase of $6.3 million or
39.4% from $16.0 million for the fiscal year ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Anchor's principal sources of liquidity have been cash flows from operations
and the net proceeds from the Secondary Offering in April 1996 and the IPO in
February 1994. Net proceeds to the Company from the Secondary Offering were
$53.9 million, and net proceeds from the IPO were $34.1 million. Net cash
provided by operating activities was $43.4 million during fiscal year 1997 and
$28.8 million during fiscal year 1996. At June 30, 1997, the Company had cash
and cash equivalents of $66.4 million, working capital of $64.6 million, and a
$10.0 million unsecured revolving bank line of credit (the "Bank Revolver").
In fiscal year 1997, the Company spent $38.1 million on capital
expenditures, primarily related to the purchase of gaming devices and equipment
for use in its proprietary games operations of approximately $30.0 million. In
addition, the Company spent $5.7 million during fiscal year 1997 related to
projects in
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Colorado including the expansion of the existing Colorado Central Station Casino
to accommodate an additional 65 gaming machines, the expansion and improvement
of parking facilities at the Colorado Central Station Casino, and the planned
development of a second casino in Black Hawk, Colorado. The Company spent $2.1
million on architectural and design costs for the planned development of the
second casino in fiscal year 1997 and fiscal year 1996 which was ultimately
written off in fiscal year 1997. The Company anticipates that capital
expenditures for the fiscal year ending June 30, 1998 will be at least $17.0
million, which will consist primarily of expenditures to purchase gaming devices
and equipment for use in its proprietary games operations.
In April 1997, the board of directors authorized a repurchase of up to
1,000,000 shares of Common Stock. At June 30, 1997, the Company had repurchased
336,000 shares of Common Stock at a cost of $13.5 million.
During fiscal year 1997, the Company made $3.1 million in advances to a 50%
owned joint venture engaged in the operation of proprietary gaming devices.
In November 1996, the Company's $20 million secured bank line of credit
expired. In April 1997, the Company entered into the Bank Revolver, which
expires November 30, 1998. The Bank Revolver bears interest at the prime rate of
interest or LIBOR plus 2%, at the Company's option. The Company has agreed to
maintain certain financial and non-financial covenants customary with lending
arrangements of this type. The Company has complied with the covenants
throughout the term of the expired credit facility and the Bank Revolver. During
fiscal year 1997 the Company did not borrow under the Bank Revolver or the line
of credit.
The Company believes its principal liquidity requirements will be the
purchase of additional proprietary gaming machines in formats that have already
been introduced to the market, the development and purchase of proprietary
gaming machines in formats that have not yet been introduced, and depending upon
the outcome of the Company's re-evaluation of the scope and nature of its
Colorado expansion options, the funding of such an expansion. At June 30, 1997,
the Company had commitments to purchase gaming equipment for approximately $5.6
million. The Company believes that cash on hand, cash flow from operations, and
available borrowings under the Bank Revolver will be sufficient to fund its
currently planned capital projects and operations.
The Company continually seeks opportunities to expand its gaming oriented
businesses in new and existing gaming jurisdictions. If successful in pursuing
another opportunity in any gaming oriented business and depending on the amount
of funding required, the Company may be required to obtain additional financing.
RECENTLY ADOPTED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121 is effective for
fiscal years beginning after December 15, 1995. Adoption of SFAS 121 in the
current year did not have a material effect on the consolidated financial
statements of the Company.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), which establishes financial accounting
and reporting standards for stock-based employee compensation plans and for
transactions in which an entity issues its equity instruments to acquire goods
or services from nonemployees. The Company continues to account for stock based
compensation arrangements in accordance with Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees," and therefore the adoption of SFAS
123 had no effect on the financial position or results of
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operations of the Company. The Company has included additional disclosures about
stock-based employee compensation plans as required by SFAS 123 in its financial
statements.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the FASB issued Statement No. 128, "Earnings per Share."
This statement establishes standards for computing and presenting earnings per
share and is effective for financial statements issued for periods ending after
December 15, 1997. Earlier application of this statement is not permitted and
upon adoption requires restatement (as applicable) of all prior-period earnings
per share data presented. Management believes that the implementation of this
standard will not have a significant effect on earnings per share.
In February 1997, the FASB issued Statement No. 129, "Disclosure of
Information about Capital Structure." This statement establishes standards for
disclosing information about an entity's capital structure. Management intends
to comply with the disclosure requirements of this statement, which are
effective for periods ending after December 15, 1997.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). This statement requires companies to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS 130 is effective for financial statements issued for
fiscal years beginning after December 15, 1997. Management does not believe that
SFAS 130 will have a material effect on Anchor's financial statements.
In June 1997, the FASB issued Statement No. 131, "Disclosure About Segments
of an Enterprise and Related Information" ("SFAS 131"). This statement
establishes additional standards for segment reporting in the financial
statements and is effective for fiscal years beginning after December 15, 1997.
The Company believes the segment information required to be disclosed under SFAS
131 will be more comprehensive than previously provided, including expanded
disclosure of income statement and balance sheet items for each of its
reportable segments under SFAS 131. However, the Company has not yet completed
its analysis of which operating segments will be subject to this reporting
requirement.
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BUSINESS
GENERAL
Anchor is a diversified gaming company that seeks to capitalize on its
experience as an operator and developer of gaming machines and casinos by
developing gaming oriented businesses. Anchor develops and distributes unique
proprietary games, operates two casinos in Colorado, including the state's most
profitable casino, and operates one of the largest and one of the most
profitable gaming machine routes in Nevada. Management believes that the Company
benefits from, among other factors: (i) depth of experienced and proven
management at both the corporate and operating levels; (ii) a diversified and
stable earnings base with significant recurring revenue sources; (iii) unique
experience in developing and marketing proprietary games; (iv) proven experience
in developing, constructing, and operating profitable casino enterprises; (v)
the ability to effectively and profitably distribute existing and new
proprietary games due to its large established casino customer base and its
licenses in virtually all major domestic gaming jurisdictions; (vi) a strong
balance sheet with which to fund future growth opportunities; and (vii)
attractive existing internal growth opportunities in its core businesses. Since
fiscal year 1990, its first full year of operations, through fiscal year 1997,
Anchor has achieved eight consecutive years of revenue, net income, and earnings
per share growth, with revenue, net income, and earnings per share during this
period growing at compounded annual rates of 44%, 63%, and 43%, respectively.
Additionally, Anchor's operating results through June 30, 1997 reflect 20
consecutive quarters in which revenue, net income, and earnings per share
increased over the comparable period in the prior year.
PROPRIETARY GAMES
Anchor develops proprietary games, which it both markets to unaffiliated
casinos and uses in its own gaming operations. The Company's strategy is to
develop games that provide casinos with a higher win per machine than their
existing gaming devices while generating significant recurring revenues to the
Company from royalty, revenue participation, or other similar agreements.
Although the Company initially developed proprietary games as a complement to
its own gaming machine operations, since February 1993 the Company has actively
marketed its proprietary games to unaffiliated casinos. The Company currently
provides proprietary games to virtually every major casino in the United States,
as well as its own casinos. In September 1996, the Company entered into a
strategic alliance with IGT to enhance the Company's ability to develop and
distribute proprietary games. Through this strategic alliance the Company and
IGT have formed the Anchor IGT JV to develop, integrate, and distribute
proprietary game concepts on a WAP system. The strategic alliance also
contemplates that in certain circumstances and in specified jurisdictions, the
proprietary game concepts may be developed and distributed on a stand alone
basis. The Company's revenues from proprietary games totaled $49.7 million for
the fiscal year ended June 30, 1997, an increase of approximately 132% over
fiscal year 1996.
The Company, seeking to capitalize on its established sales and marketing
infrastructure, its extensive base of existing casino customers, and its
licenses in virtually all major domestic gaming jurisdictions, has been actively
developing proprietary games, which can be classified as either a dedicated
proprietary game, a proprietary game on a WAP, or a converted proprietary game.
The Company's proprietary games are designed to increase gaming customer play
levels by either enticing the customer to play longer or to wager more coins per
play. The Company believes that a significant opportunity exists to further
expand and develop the market for proprietary games distributed on a
participation basis.
DEDICATED PROPRIETARY GAMES. The Company has successfully developed or
acquired the rights to five proprietary games that are currently installed and
approved for use in unaffiliated casinos. Anchor's dedicated proprietary games
include Wheel of Gold, Totem Pole, Silver Strike, Clear Winner, and
Rock'N'Reels. All of the machines are placed in casinos free of charge under
royalty, revenue participation, or other similar agreements, allowing the casino
to avoid up-front purchase costs and providing significant recurring revenues to
Anchor. The machines utilize numerous unique concepts and designs in
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order to increase overall gaming customer play levels. For example, the
Company's two most popular dedicated proprietary games, Totem Pole and Wheel of
Gold, each incorporate innovative game features that contribute to higher play
levels. Totem Pole comprises three games in one slot machine creating a unique
visual presentation in the casino environment. Greater play levels are realized
on Totem Pole because the player must insert the maximum number of coins to
activate all three games and benefit from the addition of a "wild" symbol.
Players on the Wheel of Gold machine have the opportunity to activate on the
same machine a three dimensional "roulette" type wheel with significantly higher
potential winnings, providing a secondary game event and additional excitement
to the customer through the Company's "game within a game" concept. Anchor's
"game within a game" concept provides the player an incentive to increase play
through the secondary game event, thereby maximizing customer playing time.
Wheel of Gold is the first generation of the Company's "game within a game"
concept that management believes will form the basis of a significant portion of
its future dedicated proprietary game designs. The Company has additional
innovative game machine concepts in various stages of development using the
Company's "game within a game" concept and other unique concepts.
WAP PROPRIETARY GAMES. A WAP is a system that electronically links
individual slot machines among multiple locations, allowing all the machines to
share a common jackpot. The WAP jackpot increases, or progresses, by a certain
percentage of each coin inserted into any one of the machines on the WAP
network, thereby allowing the jackpot to increase rapidly to a significant
amount. Management believes that the larger jackpots offered by WAP machines
attract a distinct portion of a customer's gaming budget as compared to a
non-progressive slot machine. In order to capture this portion of a customer's
gaming budget, the Company has entered into a strategic alliance resulting in
the Anchor IGT JV for the purpose of developing and installing WAP machines
based on both existing dedicated proprietary games and other proprietary
designs. The Company and IGT share in the management of the Anchor IGT JV and
will share equally in its profits and losses. The first WAP machine introduced
by the Anchor IGT JV is the Wheel of Fortune-TM-, a game that is very similar to
the Company's Wheel of Gold. Additionally, the Anchor IGT JV has recently
introduced Totem Pole on a WAP and has other WAP concepts at various stages of
development.
CONVERSION OPPORTUNITY. The Company's first proprietary game was the video
poker game Double Down Stud, a software conversion kit that the Company installs
in existing third party casino gaming machines. The enhancement created by this
installation provides the Company a daily royalty for each converted machine.
Management believes that as casinos experience pressure to increase "same store
sales" they will seek to enhance the performance of their installed base of
machines by adding new features by means of conversion kits. The Company is
currently developing technology to allow older generation slot machines to
utilize additional features such as the "game within a game" concept. The
Company anticipates that future conversion kits would be installed on a royalty
or similar basis. The Company estimates that there are currently more than
300,000 slot machines installed in the United States. The Company believes that
this installed base of machines represents a substantial opportunity for
installation of conversion kits.
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The following is a description of the Company's proprietary games that are
currently being distributed.
<TABLE>
<S> <C>
- - DOUBLE DOWN STUD Double Down Stud is a software conversion kit introduced in 1993 that
is installed in casino customers' gaming machines to allow players to
play a unique version of video poker.
- - SILVER STRIKE Silver Strike is a standard slot machine, the rights to which were
acquired at the time of the IPO in 1994, that pays out souvenir tokens
for certain winning combinations. Anchor furnishes Silver Strike
machines free of charge to its casino customers, who agree to purchase
the silver tokens exclusively from the Company.
- - CLEAR WINNER Clear Winner is a standard slot machine introduced in 1995 that is
remanufactured into a clear cabinet so that players can observe all of
its inner workings. The game includes state of the art signage and a
custom designed cabinet.
- - WHEEL OF GOLD Wheel of Gold is a standard slot machine introduced in 1995 that has
the added dimension of giving players the opportunity to activate on
the same machine a three-dimensional "roulette" type wheel with
significantly higher potential winnings, providing additional
excitement to the player through the Company's "game within a game"
concept.
- - TOTEM POLE Introduced in 1996, Totem Pole incorporates three games in one device,
each of which is activated by inserting two coins. Each successive game
played provides the possibility of greater payback to the player. When
the player activates all three games by playing six coins, the player
is rewarded with a "wild" symbol common to all three games.
- - ROCK'N'REELS Introduced in 1996, Rock'N'Reels is a specially packaged standard slot
machine designed to evoke the image of a vintage juke box. The game is
enhanced with state of the art sound and signage.
</TABLE>
The Company derives recurring revenues on these machines in various forms,
including daily or similar royalties, revenue participation agreements, and
other similar agreements with casinos, and, in the case of Silver Strike, by
selling the souvenir tokens to casinos.
DEVELOPMENT. Anchor is continually engaged both in the development of new
proprietary games and in the improvement of existing games. After the Company
has identified the basic concept for a new game, it works to refine the new game
to maximize player appeal. The Company's efforts include computer simulated
studies of the game probabilities to determine the optimal pay schedules;
research of, and application for, any significant intellectual property rights
that can be claimed; design of packaging for the game; establishment of a
pricing strategy for the game; and application for the necessary regulatory
approvals. Anchor then solicits feedback from potential casino customers to
further refine the game. At the production stage, Anchor and the manufacturer
refine the technology and construction of the game. Prior to the release of any
new game, Anchor must receive necessary regulatory approvals.
DISTRIBUTION. Anchor has an established sales organization with offices in
Nevada, Missouri, Mississippi, Louisiana, and New Jersey servicing an
established customer base of over 200 casinos at June 30, 1997. The Company
distributes its proprietary games primarily through a direct sales effort in
which sales representatives call on casinos and other potential customers.
Anchor also uses distributors in a limited number of jurisdictions.
ANCHOR IGT STRATEGIC ALLIANCE. In September 1996, the Company entered into
an agreement with IGT (the "Strategic Alliance"). The Company believes that the
Strategic Alliance will facilitate both the
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<PAGE>
expansion of their proprietary games business and the Company's ability to
develop and distribute additional proprietary games on a WAP.
As part of the Strategic Alliance, Anchor and IGT have formed an initial
joint venture. The Company and IGT share in the management of the joint venture
and will share equally in its profits and losses. IGT's WAP system is being used
within the joint venture for a variety of the Company's dedicated proprietary
game concepts including Wheel of Gold and Totem Pole. IGT's Wheel of Fortune-TM-
game is also covered under the Strategic Alliance. Property, including
intellectual property, developed through the joint venture is owned by the joint
venture. The joint venture agreement has an initial duration of ten years and
terminates unless the parties thereto agree to an extension. After the initial
ten year term, either party may terminate the joint venture upon at least one
year's prior notice. The joint venture does not acquire any rights to the
intellectal property rights of each of Anchor and IGT that are developed outside
of the joint venture.
The Company believes the Strategic Alliance will enhance the profitability
of games developed by the Company in the future through either an expansion of
the initial joint venture or similar joint venture agreements with IGT, or both.
In the event that any particular state jurisdiction prohibits the equal share of
profits and losses, management responsibility, or allocation of expenses in the
joint venture, it is contemplated that alternative arrangements will be made to
satisfy such regulatory objections.
INTELLECTUAL PROPERTY RIGHTS. Anchor has secured and endeavors to secure,
to the extent possible, exclusive rights in its games, primarily through federal
and foreign intellectual property rights, such as patents and trademarks. The
United States Patent and Trademark Office has issued four patents covering the
Double Down Stud games in the United States. These patents expire on March 31,
2009. The United States Patent and Trademark Office has issued one patent
covering innovations of the Silver Strike game in the United States, but there
is no independent protection of the game itself. This patent expires on March
14, 2012. In 1993, the Company received a U.S. patent relating to a system it
developed that allows players of gaming devices to participate in a group game,
such as bingo, without leaving the gaming device they are playing. In order to
protect potential foreign sources of income, the Company has filed patent
applications and trademark applications in strategically selected foreign
countries. There can be no assurance that any of the pending U.S. or foreign
patent or trademark applications will issue as patents or trademark
registrations, respectively, or that any of these rights will not be infringed
by others or that already issued patents or trademark registrations will not be
invalidated or canceled. None of the foregoing measures provides assurance that
Anchor's proprietary games or the concepts incorporated in the games could not
be successfully duplicated by third parties. Third parties could infringe on
Anchor's rights, or Anchor's proprietary games could be successfully duplicated
without infringing on Anchor's legal rights. Many elements incorporated in
Anchor's proprietary games are in the public domain or otherwise not susceptible
to legal protection, and the steps taken by Anchor will not, in and of
themselves, preclude competition with Anchor's proprietary games.
Double Down Stud, Colorado Central Station Casino, Silver Strike, and Fast
Track Express are registered trademarks of Anchor. Anchor also has applications
pending on several other trademarks and/ or service marks, including Anchor
Coin, Anchor Gaming, Anchor Games, Spin for Cash, Wheel of Gold, Clear Winner,
Colorado Grande, Totem Pole, CashBall, KenoBucks, Rock'N'Reels, Maggie's Slot
Club, and Fast Track Slot Club. There can be no assurance that the pending
trademark or patent applications will be issued, that the Company's applications
will not be opposed by a third party, or that Anchor will not face third
parties' claims to prior use of one or more of these marks or patents.
CASINOS
GENERAL. In November 1990, the state of Colorado approved limited stakes
gaming ($5.00 or less per wager) in two historic gold mining areas, Black
Hawk/Central City and Cripple Creek. Because of the $5.00 maximum bet, Anchor's
casinos in Colorado emphasize gaming machine play. Anchor currently
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operates a casino in each of these markets, the Colorado Central Station Casino
in Black Hawk and the Colorado Grande Casino in Cripple Creek. Black Hawk and
Central City are contiguous and are located approximately 40 miles from Denver
and 10 miles from Interstate 70, the main highway connecting Denver to many of
Colorado's major ski resorts. Cripple Creek is located approximately 45 miles
from Colorado Springs and 75 miles from Pueblo. Casinos located in the Black
Hawk/Central City area serve primarily the residents of Denver and Boulder,
Colorado and surrounding communities, an area with a total population in excess
of 1.8 million. Approximately three million people live within a 100-mile radius
of the Black Hawk/Central City area. Casinos located in Cripple Creek serve
primarily the residents of Colorado Springs, Pueblo, and surrounding
communities. More than two million people live within a 100-mile radius of
Cripple Creek.
The following table sets forth statistical information related to casinos in
the state of Colorado, the Black Hawk/Central City market, Cripple Creek, and
the Company's casinos during the fiscal years ended June 30, 1995, 1996, and
1997 compiled from data published by the Colorado Limited Gaming Control
Commission.
<TABLE>
<CAPTION>
COMBINED COLORADO
BLACK HAWK/ CENTRAL COLORADO
CENTRAL STATION CRIPPLE GRANDE
FISCAL YEARS ENDED JUNE 30, COLORADO CITY CASINO CREEK CASINO
--------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue per device per day (1):
1997.................................... $ 86 $ 99(2) $ 239 $ 63 $ 119
1996.................................... 87 96(2) 253 69 105
1995.................................... 81 88(2) 225 65 80
Aggregate gaming revenue (in thousands):
1997.................................... $ 423,432 $ 315,983 $ 60,284 $ 107,449 $ 9,170
1996.................................... 401,864 302,971 57,698 98,893 7,522
1995.................................... 358,861 270,282 50,763 88,579 5,583
Average number of gaming devices in
operation(1):
1997.................................... 13,435 8,758 689 4,677 212
1996.................................... 12,607 8,691 625 3,917 196
1995.................................... 12,117 8,394 617 3,723 192
Average number of casinos in operation:
1997.................................... 56 32 -- 25 --
1996.................................... 57 32 -- 25 --
1995.................................... 59 34 -- 24 --
</TABLE>
- ------------------------------
(1) Devices include gaming machines and table games.
(2) Revenue per device per day for the combined Black Hawk/Central City market
excluding the Colorado Central Station Casino was $87, $83, and $77 for the
fiscal years ended June 30, 1997, 1996, and 1995, respectively.
COLORADO CENTRAL STATION CASINO. On December 25, 1993, the Company opened
the Colorado Central Station Casino in Black Hawk at a cost of approximately
$25.0 million. The Colorado Central Station Casino is currently the highest
revenue producing and most profitable casino in the state. After completion of a
2,750 square foot expansion in 1996, the casino building has approximately
49,000 square feet of main facility area, with 16,637 square feet of gaming
space over three floors. The Colorado Central Station Casino features more than
680 gaming machines, ten blackjack tables, nine poker tables, and a food court
restaurant area. The casino benefits from a favorable location, as it is the
first casino encountered by customers traveling from Denver to the Black
Hawk/Central City area. In addition, the Colorado Central Station Casino offers
convenient parking to its customers, with more than 770 parking spaces, whereas
many other casinos in the Black Hawk/Central City market lack convenient parking
and,
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as a result, have had difficulty attracting and retaining customers. The
Colorado Central Station Casino is also the closest casino to Black Hawk's 3,000
space public parking facility, located one and one-half miles from the casino,
and is the first stop from the parking facility on the parking lot shuttle bus
route. Anchor believes that the Colorado Central Station Casino's location,
convenient parking, size and design, and highly successful Fast Track Slot Club
and player tracking system give it a competitive advantage over the other
casinos in the Black Hawk/Central City market. The Colorado Central Station
Casino is situated on approximately 1.8 acres of land on the south end of Black
Hawk, near Main Street and Colorado State Highway 119. The Colorado Central
Station Casino's net win per device (which includes both gaming machines and
table games) per day was $239 for the fiscal year ended June 30, 1997 as
compared to a reported average net win per device per day of $87 for the other
casinos in the Black Hawk/Central City market for the same period.
The Colorado Central Station Casino is fashioned in the style of a 19th
century mining town railroad station. According to information on file with the
Colorado Historic Preservation Office, the Colorado Central Station Casino
property is within the Black Hawk Registered Historic District and meets the
historical guidelines for use as a gaming establishment. Most casinos in
Colorado occupy buildings that were originally constructed for uses other than
gaming. In contrast, the Colorado Central Station Casino was constructed
specifically for gaming activities, and as a result offers a more open, spacious
gaming area, while using the maximum square footage allowed under Colorado law,
which limits the square footage of a casino that may be used for gaming
activities to 35% of the building and 50% of any one floor. At June 30, 1997,
the Colorado Central Station Casino employed approximately 444 people and by law
is allowed to be open seven days a week from 8:00 a.m. to 2:00 a.m.
All gaming machines at the Colorado Central Station Casino offer bill
validators that accept $1, $5, $10, $20, $50, and $100 bills. Management
believes that bill validators increase revenues from its machines by allowing
faster play and eliminating waiting time for change. In addition, the Company
has installed an automated player tracking system at the casino that is tied
into the Company's accounting system to provide detailed management reports
regarding gaming machine use. The system facilitates the casino's Fast Track
Slot Club, which is designed to attract and retain gaming patrons by enabling
the Company to identify, market to, and reward its loyal customers. For the year
ended June 30, 1997, over 65% of all money wagered at gaming machines at the
Colorado Central Station Casino was from Fast Track Slot Club members.
COLORADO GRANDE CASINO. The Company operates (through an 80% owned
subsidiary) the Colorado Grande Casino in Cripple Creek, which is located
approximately 45 miles from Colorado Springs and 75 miles from Pueblo. The
Colorado Grande Casino, which opened October 11, 1991, is located at one of the
principal intersections in Cripple Creek and features more than 210 gaming
machines, 44 adjacent parking spaces, and a full service restaurant and bar. In
August 1995, the Company completed the installation of an automated player
tracking system and a player slot club, "Maggie's Slot Club." Maggie's Slot Club
and the player tracking system have enabled the casino to implement marketing
programs designed to attract and increase the number of loyal casino customers.
At June 30, 1997, Maggie's Slot Club had more than 50,000 members, a 108%
increase over the prior year. Primarily as a result of a continual building of a
customer base through the slot club and player tracking system, along with
monthly Maggie's Slot Club promotions, slot revenue at the Colorado Grande
Casino increased approximately 24% during fiscal year ended June 30, 1997 as
compared to fiscal year ended June 30, 1996. At June 30, 1997, the Colorado
Grande Casino employed approximately 101 people and by law is allowed to be open
seven days a week from 8:00 a.m. to 2:00 a.m.
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<PAGE>
CANADIAN OPPORTUNITY. The Ontario provincial government has identified 44
locations throughout the Province of Ontario as sites for permanent charity
based gaming club casino operations. These permanent charity gaming clubs will
replace the current three-day roving Monte Carlo events and are being introduced
as a way to both stabilize funding to charities and to increase control,
supervision, and accountability in this gaming sector. The provincial government
has had substantial success in introducing other regulated gaming locations as
illustrated by the commercial casinos in Windsor and Niagara Falls, Canada. Each
permanent charity based gaming club location will be limited to a total of 150
video lottery terminals and 40 table games. The Province of Ontario anticipates
that the permanent charity based gaming clubs will be approximately one-tenth of
the size of a commercial casino such as Niagara Casino. Since its opening on
December 9, 1996, through July 31, 1997, the Niagara Casino has reported
revenues of $313 million. The permanent charity based gaming clubs will be
operated under management agreements with the provincial government, which will
provide the operator with 10% of video lottery terminal revenue, 5% of table
game, retail, and food and beverage revenue, and 10% of net income, as adjusted.
The provincial government has divided the locations into clusters of 5 or 6
locations per cluster with each to be operated under a single collective
management agreement and 8 stand alone locations that will be operated under
individual management agreements. Several of the clusters include locations in
the Toronto metropolitan area. The provincial government has indicated that no
operator will be awarded contracts for more than 25% of the total number of
locations.
In January 1997, the Company entered into an agreement with Revenue
Properties Company for the purpose of submitting a proposal to operate permanent
charity based casino operations in the Province of Ontario. In April 1997, the
Anchor RPC JV submitted a proposal for the management agreements on all but one
of the clusters and two of the stand alone locations. On August 13, 1997, the
provincial government announced that, of the 39 original proposals received for
consideration, it had selected a "short list" of 13 proposals, which includes
the proposal submitted by the Anchor RPC JV. The provincial government expects
that some charity gaming clubs may be in operation by the end of 1997. There
can, however, be no assurance that Anchor will be successful in its effort to
secure management contracts or if successful, which locations, the number of
contracts, the time frame in which they might be awarded, or when the sites will
be operational, in Ontario, Canada. See "Risk Factors -- Competition."
ROUTE OPERATIONS
Anchor is one of the largest gaming machine route operators in Nevada with
801 gaming machines in 58 locations at June 30, 1997, up from 692 gaming
machines in 50 locations at June 30, 1996. The Company's gaming machine route
operations in Nevada involve the installation, operation, and service of gaming
machines (virtually all video poker machines) under space leases with retail
chains and under revenue participation agreements with local taverns and retail
stores, principally in the Las Vegas area. Management believes that its route
operation contracts provide the Company with a long-term, stable revenue source
and that its route has the highest revenue and profit per machine of any route
operation in the state of Nevada. In 1996, the Company extended its exclusive
space lease agreement with Smiths, its largest route customer, for an additional
five years at current rates through 2010. At June 30, 1997, 716 of the Company's
801 gaming machines in Nevada were located in or near Las Vegas, which has been
one of the fastest growing cities in the United States in recent years. Anchor
believes that its route operations will benefit from the continued growth of the
Las Vegas area, the associated growth of its existing customers in that market,
and the Company's continued installation of bill validators on its gaming
machines.
Anchor's agreements for its locations generally are in the form of either
written space lease agreements or revenue sharing contracts and generally give
Anchor the exclusive right to install gaming machines at such locations. Two of
the Company's gaming route agreements are space leases with major retail chains
that require payments of fixed monthly fees based on the amount of space used or
the number of gaming machines installed at each location. The remainder of the
Company's gaming route agreements are revenue participation arrangements, which
provide for the payment to the location owner of a percentage of revenues
generated by Anchor's machines at such location. A location owner is not
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permitted to receive a percentage of revenues unless such owner is licensed by
the Nevada Gaming Commission. See "Regulation -- Nevada."
In 1996, Anchor extended its space lease agreement with its largest gaming
machine route customer, Smiths, which was scheduled to expire in the year 2005,
for five additional years at current rates through 2010. Anchor paid $5.0
million to Smiths for this extension. The agreement with Smiths provides for a
fixed monthly rental fee per store throughout the term of the agreement and
grants Anchor the exclusive right to install gaming machines at all Smiths
stores in Nevada, including stores opened in the future.
Anchor's space leases and revenue participation arrangements generally
require Anchor to pay all installation, maintenance, and insurance expenses
related to its operations at each location. Applicable taxes are paid by Anchor
under space leases and are generally shared on the same basis as revenues under
revenue participation arrangements. The leases generally provide that if Anchor
fails to pay the required rental or license fees or defaults in the performance
of any of its other obligations, the location operator can terminate the lease.
Anchor believes that it is not in default under any of its present space leases
or revenue participation arrangements. Generally, in the ordinary course of
business, Anchor has lease and other security deposits, prepaid rent, and
advances held by the owners of chain stores and other location operators.
Anchor attempts to attract and retain gaming machine route patrons by
offering an attractive selection of gaming machines. Prior to installing
machines at a location, Anchor studies the market potential and customer base
and determines the appropriate machine mix for the location. Progressive
jackpots are also offered at most of the Company's locations. Virtually all of
the gaming machines operated by the Company's route operation are video poker
machines because Anchor believes that interactive electronic games, such as
video poker, are more attractive to its gaming machine route patrons than
simple, mechanical reel-type slot machines.
In marketing its services to the owners of retail stores and taverns, the
Company also emphasizes quality service. The Company operates and services its
machines using its own employees, who routinely repair and maintain the
Company's gaming machines in order to improve reliability and in-service time.
Management believes that the Company's gaming machines and related equipment are
well maintained and in good working condition. In addition to physical service
of the gaming machines, employees of the Company remove coins from the machines,
refill machines that have exhausted their supply of coins, and provide payment
of jackpots in excess of machine limits. Anchor also operates change booths at
certain of its retail store locations.
SUPPLIERS
Anchor has contracted with several manufacturers to develop both Anchor's
existing and future product requirements. To date, the Company has purchased
substantially all of the gaming machines used in its route operations from IGT.
Silver Strike machines are currently produced by either IGT or Sigma Game, Inc.
The primary components of Wheel of Gold are purchased from Bally Gaming
International, Inc. and Acres Gaming. Totem Pole was originally manufactured for
the Company by Universal Distributing of Nevada, Inc. Since that time, the
Company has also contracted with Bally Gaming International, Inc. and IGT for
the manufacture of Totem Pole. The Company is expected to continue its reliance
on third parties for the manufacture of its proprietary games. An inability to
obtain quality gaming machines, production parts, and replacement parts on
reasonable terms or on a timely basis could have an adverse effect on Anchor.
COMPETITION
Anchor is subject to intense competition in all of its markets, and
management believes that national, regional, state, and local competition in the
gaming industry in general will be extremely high during the foreseeable future,
as gaming activities continue to expand in both traditional and new gaming
jurisdictions. In addition, many of the Company's competitors have greater
financial resources than the Company.
29
<PAGE>
PROPRIETARY GAMES. Intense competition characterizes the market for
proprietary games. Management believes that the primary bases for competition in
the casino game market are price and potential profit to gaming location
operators that install the games. The perceived popularity of games with casino
patrons as well as the economics of the game are, management believes, factors
considered by potential casino customers. The popularity of any of the Company's
games may decline over time as consumer preferences change or as new, competing
games are introduced. As a result, Anchor must continually anticipate and adapt
its products to consumer preferences to maximize the economics of the game to
the Company. There can be no assurance, however, that Anchor will continue to be
successful in developing and marketing its products. If the Company fails to
develop games that achieve market acceptance or if existing games become
obsolete due to the introduction of popular games by Anchor's competitors the
effects on Anchor could be material and adverse. Competitors in the game
industry include manufacturers of gaming devices and other companies marketing
gaming products and conversion kits that compete directly with the Company for
the limited gaming spaces available at casinos.
Anchor's strategy of creating recurring revenues from its proprietary games
by placing the games in casinos under a royalty, revenue participation, or
similar agreements involves a departure from the traditional practice of casinos
of owning or leasing gaming devices. To the extent that casinos are reluctant to
enter into arrangements that generate recurring revenues for suppliers of casino
games, the market for Anchor's proprietary games could be limited. Competition
within the market for games that generate recurring revenues could intensify as
other suppliers of gaming devices enter this market or offer competitive
products or terms.
CASINOS. Intense competition also characterizes the Black Hawk/Central City
and Cripple Creek markets. Since limited stakes gaming was instituted in
Colorado in 1991, a number of Colorado casinos have ceased operations and others
have filed for protection under Chapter 11 of the Bankruptcy Code. Others have
closed temporarily or reduced the number of employees, and many casinos may not
be operating profitably. Several proposals have been made to open new casinos or
to expand existing casinos in Black Hawk, some of which have been abandoned or
modified. Two casinos are being developed in Black Hawk located across the
intersection from the Company's Colorado Central Station Casino. Casino America
and Nevada Gold & Casinos have commenced construction of a casino scheduled to
open in early 1999, which facility is expected to include 1,100 slot machines,
24 table games, and a 1,000 car parking garage. Riviera Holdings Corporation has
announced that it plans to develop a gaming facility with 1,000 slot machines,
14 table games, and a 500 space covered parking garage, scheduled to open in the
Spring of 1999. A joint venture between Black Hawk Gaming & Development Company,
Inc. and Jacobs Entertainment Ltd. is constructing a gaming facility located
near Colorado Central Station. The facility is scheduled to be completed in June
1998 and is expected to include 800 slot machines, 20 table games, and 500
parking spaces. In addition, construction is proceeding on a third major
intersection off State Highway 119, which will provide access directly to one of
the new casinos from State Highway 119, which is the primary access from the
Denver metropolitan area. From time to time other casino companies have publicly
expressed an interest in pursuing development or expansion in the Black
Hawk/Central City market, and proposals to develop competitive projects are
ongoing.
It appears that national, regional, state, and local competition for the
casino gaming market in general will remain extremely high during the
foreseeable future, as casino gaming activities expand in traditional gaming
states and in new jurisdictions. In addition, passage of the Indian Gaming
Regulatory Act in 1988 has led to rapid increases in Native American gaming
operations, and the Company's two casinos may compete for customers with casinos
located on Indian reservations in far southwestern Colorado. The Company expects
many competitors to enter new jurisdictions that authorize gaming, some of whom
may have greater financial and other resources than the Company. Such
proliferation of gaming activities could adversely affect the Company's
business. In particular, the legalization of casino gaming in or near any
metropolitan area, such as Denver, Colorado, from which the Company draws
customers would have a material adverse effect on the Company's business. The
Company believes, however, that proliferation of gaming activities into new
jurisdictions presents an opportunity for it to expand its proprietary games
operations.
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Colorado law requires an amendment to the State Constitution followed by
local voter approval for any expansion of limited gaming. State and local public
initiatives regarding limited stakes gaming in Colorado are being actively
pursued by many persons. Several cities within Colorado have active citizens'
lobbies that were able to place limited gaming initiatives on the November 1994
and November 1996 statewide ballot. Although these initiatives failed by
substantial margins, new initiatives could be introduced on future statewide
ballots to allow expansion of gaming in Colorado. Future initiatives, if passed,
could significantly increase the competition for gaming customers, thereby
adversely affecting Anchor's current casino operations in Colorado. In addition,
Anchor's casinos in Colorado compete with casinos in other parts of the United
States, as legalized gambling continues to proliferate.
ROUTE OPERATIONS. Gaming machines and gaming of all types are available in
Nevada casinos and in restricted gaming locations similar to those in which the
Company operates gaming machines, and all of these gaming establishments compete
directly or indirectly with Anchor's route operations. In addition, Anchor is
subject to substantial competition for the operation of gaming machines in
approved locations from numerous small gaming machine route operators and some
large operators, located principally in Las Vegas and Reno, Nevada, and their
surrounding areas. The principal methods of competition for gaming machine
locations are the lease, sublease, license, or revenue sharing terms, the
service provided by the route operator, the reputation of the route operator,
and the financial strength of the route operator. As existing space lease and
revenue participation arrangements expire, competition for renewals can be
expected to increase the amounts payable to location owners as compared to
amounts payable under existing agreements. Anchor's route is the only route
operation that features Double Down Stud, as the Company does not offer the game
to competing route operators. Providing a proprietary game in its route
operation is one of the ways Anchor differentiates itself from its competitors.
SECURITY
Anchor's casino and gaming machine route operations generate, and require
the Company to maintain, a large supply of available cash. In order to mitigate
the risks of loss associated with maintaining such a supply, the Company employs
physical security measures and utilizes strict internal accounting and custodial
controls on receipts and disbursements. There can be no assurance, however, that
the Company's precautions, internal controls, and physical security will provide
security for its employees or prevent cash shortages resulting from employee
errors or from theft. In addition, the Company maintains insurance to mitigate
this risk.
EMPLOYEES
At June 30, 1997, Anchor employed 869 persons, the substantial majority of
whom are nonmanagement personnel. Of this total, approximately 545 people worked
at the Colorado Central Station Casino and the Colorado Grande Casino. The
balance of the Company's nonmanagement employees is involved in route and
proprietary games operations. None of Anchor's employees is covered by a
collective bargaining agreement, and Anchor believes that it has satisfactory
employee relations.
SEASONALITY
The Company's operations as a whole are not subject to significant seasonal
variations. However, in general, the highest levels of business activity at its
Colorado casinos occur during the tourist season from July to October of each
year. In addition, operations at the Colorado casinos during the winter months
could be significantly affected by weather and road conditions in Colorado. The
Company's proprietary games operations typically have their highest levels of
business during the summer tourist season when its casino customers experience
heavier tourist traffic.
LITIGATION
From time to time the Company is a defendant in various lawsuits in routine
matters incidental to its business. Management does not believe that the outcome
of any such litigation will have a material effect on Anchor.
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REGULATION
NEVADA
The manufacturing and distribution of gaming devices and the ownership and
operation of gaming machine routes in Nevada are subject to (i) the Nevada
Gaming Control Act and the regulations promulgated thereunder (collectively, the
"Nevada Act") and (ii) various local regulations. Generally, gaming activities
may not be conducted in Nevada unless licenses are obtained from the Nevada
Gaming Commission (the "Nevada Commission") and appropriate county and city
licensing agencies. The Nevada Commission, the Nevada State Gaming Control Board
(the "Nevada Board"), and the various county and city licensing agencies are
collectively referred to as the "Nevada Gaming Authorities."
The laws, regulations, and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things, (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping, and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (iv) the prevention of
cheating and fraudulent practices; and (v) providing a source of state and local
revenues through taxation and licensing fees. Changes in such laws, regulations,
and procedures could have an adverse effect on Anchor.
Anchor Coin, which is the Company's subsidiary engaged in the distribution
of gaming devices and route operations, is licensed by the Nevada Gaming
Authorities. Anchor Coin is also licensed as a manufacturer to enable it to
develop its proprietary games. Anchor Coin's gaming licenses require the
periodic payment of fees and taxes and are not transferable. Anchor is
registered by the Nevada Commission as a publicly traded corporation
("Registered Corporation") and, as such, is required periodically to submit
detailed financial and operating reports to the Nevada Commission and furnish
any other information that the Nevada Commission may require. No person may
become a stockholder of, or receive any percentage of profits from, Anchor Coin
without first obtaining licenses and approvals from the Nevada Gaming
Authorities. The Company and Anchor Coin have obtained from the Nevada Gaming
Authorities the various registrations, approvals, permits, and licenses required
in order to engage in gaming activities in Nevada.
Anchor Coin's operator's license enables it to operate gaming machines on
premises owned by others. At locations with 15 or fewer gaming machines, the
operation is considered to be a "restricted" gaming location. At locations with
more than 15 gaming machines, the operation is considered to be a
"nonrestricted" gaming location. Only one of the Company's route locations is a
nonrestricted location. The nonrestricted regulatory requirements are reduced to
some extent because no more than 35 gaming machines, and no table games, are
operated at this location. Slot machines operated at restricted and
nonrestricted locations are subject to various fixed fees and per-machine taxes
levied on a quarterly and annual basis by the Nevada Gaming Authorities.
Nonrestricted locations are subject to a tax on their gross revenues (the
difference between amounts wagered by casino patrons and payments to casino
patrons) that ranges from 3.0% to 6.25%. In its space lease agreements with
retail chains, Anchor has agreed to pay all taxes and fees relating to the
operation of gaming machines, and in its participation arrangements, taxes and
fees are typically shared on the same basis as revenues. Significant increases
in the fixed fees or taxes currently levied per machine or the tax currently
levied on gross revenues could have a material adverse effect on the Company.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or Anchor
Coin in order to determine whether such individual is suitable or should be
licensed as a business associate of a gaming licensee. Officers, directors, and
certain key employees of Anchor Coin must file applications with the Nevada
Gaming Authorities and are required to be licensed by the Nevada Gaming
Authorities. Officers, directors, and key employees of the
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Company who are actively and directly involved in the gaming activities of
Anchor Coin may be required to be licensed or found suitable by the Nevada
Gaming Authorities. The Nevada Gaming Authorities may deny an application for
licensing or a finding of suitability for any cause they deem reasonable. A
finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must pay
all the costs of the investigation. Changes in licensed positions must be
reported to the Nevada Gaming Authorities, and, in addition to their authority
to deny an application for a finding of suitability or licensure, the Nevada
Gaming Authorities have jurisdiction to disapprove a change in a corporate
position.
If the Nevada Gaming Authorities were to find an officer, director, or key
employee unsuitable for licensing or to have a continuing relationship with the
Company or Anchor Coin, the companies involved would have to sever all
relationships with such person. In addition, the Nevada Commission may require
the Company or Anchor Coin to terminate the employment of any person who refuses
to file appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company and Anchor Coin are required to submit detailed financial and
operating reports to the Nevada Commission. Substantially all material loans,
leases, sales of securities, and similar financing transactions by Anchor Coin
must be reported to or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by Anchor Coin, the
gaming licenses it holds could be limited, conditioned, suspended, or revoked,
subject to compliance with certain statutory and regulatory procedures. In
addition, Anchor Coin, the Company, and the persons involved could be subject to
substantial fines for each separate violation of the Nevada Act at the
discretion of the Nevada Commission. Further, a supervisor could be appointed by
the Nevada Commission to operate the Company's nonrestricted locations, and,
under certain circumstances, earnings generated during the supervisor's
appointment (except for the reasonable rental value of the Company's gaming
property) could be forfeited to the state of Nevada. Limitation, conditioning,
or suspension of any gaming license or the appointment of a supervisor could
(and revocation of any gaming license would) materially and adversely affect
Anchor.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his or her suitability as a beneficial holder of the Company's voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
state of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than five percent of
the Company's voting securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10% of
the Company's voting securities apply to the Nevada Commission for a finding of
suitability within thirty days after the Chairman of the Nevada Board mails a
written notice requiring such filing. Under certain circumstances, an
"institutional investor," as defined in the Nevada Act, that acquires more than
10% but not more than 15% of the Company's voting securities, may apply to the
Nevada Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment purposes only.
An institutional investor will not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Company, any change in the Company's
corporate charter or bylaws, management, policies, or operations of the Company
or any of its gaming affiliates, or any other action that the Nevada Commission
finds to be inconsistent with holding the Company's voting securities for
investment purposes only. Activities that are not deemed to be inconsistent with
holding voting securities for investment purposes only include (i) voting on all
matters voted on by stockholders; (ii) making financial and other inquiries of
management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies, or
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operations; and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the beneficial holder
of voting securities that must be found suitable is a corporation, partnership,
or trust, it must submit detailed business and financial information including a
list of its beneficial owners. The applicant is required to pay all costs of
investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board may be found unsuitable. The same restrictions
apply to a record owner if the record owner, after request, fails to identity
the beneficial owner. Any stockholder found unsuitable and who holds, directly
or indirectly, any beneficial ownership of the common stock of a Registered
Corporation beyond such period of time as may be prescribed by the Nevada
Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company or Anchor
Coin, the Company (i) pays that person any dividend or interest upon voting
securities of the Company; (ii) allows that person to exercise, directly or
indirectly, any voting right conferred through securities held by that person;
(iii) pays remuneration in any form to that person for services rendered or
otherwise; or (iv) fails to pursue all lawful efforts to require such unsuitable
person to relinquish his or her voting securities for cash at fair market value.
Additionally, the Clark County, Nevada Liquor and Gaming Licensing Board has
taken the position that it has the authority to approve all persons owning or
controlling the stock of any corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated, and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.
The Company is required to maintain a current stock ledger in Nevada that
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the Company's stock certificates to bear a
legend indicating that such securities are subject to the Nevada Act. However,
to date, the Nevada Commission has not imposed such a requirement on the
Company.
The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire, or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Since the Company will not receive any of the proceeds from the sale
of shares of Common Stock by the Selling Stockholders pursuant to this Offering,
this Offering is not subject to the prior approval of the Nevada Gaming
Commission. There has been no finding, recommendation, or approval by the Nevada
Commission or the Nevada Board as to the accuracy or adequacy of the Prospectus
or the investment merits of the securities. Any representation to the contrary
is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby such person obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and the Nevada Commission
concerning a variety of stringent standards prior to assuming control of such
Registered Corporation. The Nevada Commission may also require controlling
stockholders, officers, directors, and other persons
34
<PAGE>
having a material relationship or involvement with the entity proposing to
acquire control to be investigated and licensed as part of the approval process
of the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities, and corporate defense tactics
affecting Nevada gaming licensees and Registered Corporations that are
affiliated with those operations may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
board of directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purpose of acquiring control of the
Registered Corporation.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of the Licensees' participation in such foreign gaming. The
revolving fund is subject to increase or decrease in the discretion of the
Nevada Commission. Thereafter, Licensees are also required to comply with
certain reporting requirements imposed by the Nevada Act. Licensees are also
subject to disciplinary action by the Nevada Commission if they knowingly
violate any laws of the foreign jurisdiction pertaining to the foreign gaming
operation, fail to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations, engage
in activities that are harmful to the state of Nevada or its ability to collect
gaming taxes and fees, or employ a person in the foreign operation who has been
denied a license or a finding of suitability in Nevada on the ground of personal
unsuitability.
The placement and number of gaming machines that may be operated in various
locations are subject to limitation and control by local city and county laws
and ordinances. Acting through their zoning powers and their powers to regulate
gaming, local government entities determine the number of gaming machines that
may be operated at non-casino locations and the types of locations where gaming
operations may be conducted. Accordingly, changes in such local zoning laws and
ordinances could have a material adverse effect on Anchor.
COLORADO
The ownership and operation of gaming facilities in Colorado are subject to
extensive state and local regulation. No gaming may be conducted in Colorado
unless licenses are obtained from the Colorado Limited Gaming Control Commission
(the "Colorado Commission"). In addition, the State of Colorado created the
Division of Gaming (the "Colorado Division") within its Department of Revenue to
license, implement, regulate, and supervise the conduct of limited stakes
gaming. The Director (the "Colorado Director") of the Colorado Division, under
the supervision of the Colorado Commission, has been granted broad powers to
ensure compliance with the law and regulations. The Colorado Commission, the
Colorado Division, the Colorado Director, and city authorities in Black Hawk,
Central City, and Cripple Creek that have responsibility for regulation of
gaming are collectively referred to as the "Colorado Gaming Authorities."
The laws, regulations, and supervisory procedures of the Colorado Gaming
Authorities seek to maintain public confidence and trust that licensed limited
gaming is conducted honestly and competitively, that the rights of the creditors
of licensees are protected, and that gaming is free from criminal and corruptive
elements. It is the stated policy of the Colorado Gaming Authorities that public
confidence and trust can be maintained only by strict regulation of all persons,
locations, practices, associations, and
35
<PAGE>
activities related to the operation of licensed gaming establishments and the
manufacture or distribution of gaming devices and equipment.
The Colorado Commission is empowered to issue five types of gaming and
gaming related licenses. Anchor's casinos in Colorado each require a retail
gaming license, which must be renewed each year, and the Colorado Division has
broad discretion to revoke, suspend, condition, limit, or restrict a licensee at
any time. No person or entity can have an ownership interest in more than three
retail gaming licenses. The Colorado Grande Casino and the Colorado Central
Station Casino have each obtained the required retail gaming licenses.
In addition to retail gaming licenses for its casinos, all of Anchor's
casino employees involved in gaming activities must apply for and receive a
support gaming license prior to commencing employment. "Key" employees, which
are defined as any executive, employee, or agent of a licensee having the power
to exercise a significant influence over decisions concerning any part of the
operations of any licensee, must obtain key licenses. At least one key license
holder must be on the premises of each casino at all times. Anchor pays the cost
of obtaining and maintaining key licenses. All licenses are revocable,
nontransferable, and valid only for the particular location initially
authorized, except that support and key employee licenses move with the approved
individual and are not location specific.
Any person or group of related persons that acquires beneficial ownership of
between 5.0% and 9.99% of the outstanding Common Stock must report the
acquisition to the Colorado Commission within ten days of acquiring such
interest and may be required to provide additional information to the Colorado
Commission and be found suitable. Any person or group of related persons that
acquires beneficial ownership of 10% (or, with respect to institutional
investors, 15%) or more of the outstanding Common Stock must apply to the
Colorado Commission within 45 days after acquiring such interest and submit to
investigation for suitability by the Colorado Commission. Certain qualifying
institutional investors, at the Colorado Commission's discretion, may acquire up
to 15% ownership before a finding of suitability is required if such investors
provide certain information to the Colorado Commission regarding investment
intent and other matters. In order to be found suitable, a stockholder must be a
person of good moral character, honesty, integrity, and, in general terms, must
be free from previous criminal or unsavory convictions or similar acts. The
Colorado Commission may require substantial information in connection with a
suitability investigation, including personal background and financial
information, source of funding information, and a sworn statement that such
person or entity is not holding the Common Stock for any other party, and also
may require fingerprints. Until a finding of suitability occurs for a
stockholder who is undergoing a suitability investigation, Anchor cannot pay any
dividends to such stockholder nor may the stockholder exercise any voting rights
with respect to the Common Stock. A stockholder that is found to be unsuitable
must transfer its Common Stock to a suitable person within 60 days after the
finding of unsuitability. Otherwise, Anchor may offer such person the lesser of
the cash equivalent of such person's investment in the Common Stock or the
current market price of the Common Stock as of the date of the finding of
unsuitability, and the stockholder will be required to sell his or her Common
Stock to Anchor. Anchor's Articles of Incorporation include a statement that all
transfers of voting securities are subject to the regulations of the Colorado
Commission and each other regulatory body to which the Company's activities are
subject and detail the possibility of a repurchase if a stockholder is found
unsuitable.
The Colorado Commission has adopted comprehensive rules and regulations that
require Anchor to maintain adequate books and records and prescribe minimum
operating, security, and payoff procedures. Regulated operating procedures
include hours of operation and rules of play. Rules regarding gaming, cheating,
and fraudulent practices have also been adopted, which Anchor is obligated to
police and enforce. Upon request, Anchor must submit copies of all written
gaming contracts and summaries of all oral gaming contracts to which it is a
party or intends to become a party. Anchor and its subsidiaries must also
promptly inform the Colorado Commission of any change in their officers or
directors and any such new officer or director will be subject to possible
investigation prior to approval. Further, if any casino employee possessing a
support license changes employment, is terminated, or resigns, Anchor must
notify the Colorado Director.
36
<PAGE>
Anchor may not make a public offering of its securities without notifying
the Colorado Commission. The notification must occur within 10 business days
after the initial filing of a registration statement with the Securities and
Exchange Commission or, if the offering will not be registered with the
Securities and Exchange Commission, 10 days prior to the public use or
distribution of any offering document. The notification procedures apply to any
offering by Anchor where the proceeds will be used or intended for use (i) in
constructing gaming facilities; (ii) in financing the operation of gaming
facilities by any licensee; (iii) in acquiring any direct or indirect interest
in Colorado gaming facilities; or (iv) in retiring or extending obligations
incurred for any of the above purposes. The notification must disclose, among
other things, a description of the securities to be offered, the proposed terms
of the offering, its anticipated gross and net proceeds, and the use of the
proceeds. Anchor will file the requisite notice with the Colorado Commission.
Colorado law requires statewide voter approval of an amendment to the State
Constitution for any expansion of limited gaming into additional locations and,
depending on the authorization approved by the statewide vote, requires, in
addition, voter approval from the locality in question. In 1994, Colorado voters
defeated by a margin of 93% to 7% a proposal to permit gaming in Manitou Springs
(located near Colorado Springs and Cripple Creek) and slot machines in airports.
On November 5, 1996, Colorado voters defeated by a margin of 69% to 31% a
proposal to allow gaming in the community of Trinidad, located on the New Mexico
border. Recently, the state legislature passed, but the Governor vetoed, a bill
that would have permitted video lottery terminals at dog and horse racetracks
under certain terms and conditions. Several cities within Colorado have active
citizens' lobbies that were able to place gaming initiatives on recent statewide
ballots. Although these initiatives have failed, new initiatives could be
introduced on future statewide ballots to allow expansion of gaming in Colorado
or prohibit gaming in the particular markets in Colorado where the Company
operates. Future initiatives, if passed, could significantly increase the
competition for gaming customers, thereby adversely affecting the Company's
operations in Colorado. Additionally, there can be no assurance that future
legislation will not be enacted that would impose additional restrictions or
prohibitions on, or assess additional fees with respect to, the Company's
business.
The sale of alcoholic beverages at Anchor's casinos is subject to licensing,
control, and regulation by the applicable state and local authorities. All
alcoholic beverages licenses are revocable and are not transferable. The
agencies involved have full power to limit, condition, suspend, or revoke any
such license, and any such disciplinary action could (and revocation would) have
a material adverse effect on Anchor.
The State of Colorado has enacted an annual tax on adjusted gross proceeds,
as defined under Colorado law ("AGP") (gross gaming revenue being defined
generally as the total amount wagered minus the total amount paid out in prizes)
of 2% of the first $2.0 million of AGP, 4% from $2.0 million to $4.0 million of
AGP, 14% from $4.0 million to $5.0 million of AGP, 18% from $5.0 million to
$10.0 million of AGP, and 20% of amounts in excess of $10.0 million of AGP.
During the first year of gaming, casinos operated under a three-tiered tax
system in which they paid 4% on the first $440,000 of AGP, 8% from $440,000 to
$1.2 million of AGP, and 15% above $1.2 million of AGP. During the second gaming
year, October 1, 1992 to September 30, 1993, casinos paid 2% on the first $1.0
million of AGP and 20% on any amount above $1.0 million of AGP. In the third
year, October 1, 1993 to September 30, 1994, casinos paid 2% on the first $1.0
million of AGP, 8% from $1.0 million to $2.0 million of AGP, 15% from $2.0
million to $3.0 million of AGP, and 18% above $3.0 million of AGP. During the
fourth and fifth years, October 1, 1994 through September 30, 1996, casinos paid
2% on the first $2.0 million of AGP, 8% from $2.0 million to $4.0 million of
AGP, 15% from $4.0 million to $5.0 million of AGP, and 18% above $5.0 million of
AGP. During the sixth year, October 1, 1996 through September 30, 1997, casinos
paid 2% on the first $2.0 million of AGP, 4% from $2.0 million to $4.0 million
of AGP, 14% from $4.0 million to $5.0 million of AGP, 18% from $5.0 million to
$10.0 million of AGP, and 20% of amounts in excess of $10.0 million of AGP.
Effective October 1 of each year, the Colorado Gaming Commission establishes the
gross gaming revenue tax for the following 12 months. Under the Colorado
Constitution, the Commission is authorized to increase the gaming tax rate to as
much as 40%. There can be no assurance that the taxes or fees applicable to the
Company will not be increased in the future, either
37
<PAGE>
by the Colorado electorate, legislation, or action by the Colorado Commission
resulting in an adverse effect on the Company's operations.
In addition, a "device fee" is required for each gaming device (i.e., each
gaming machine and each gaming table). The State of Colorado currently imposes
an annual fee of $75 per device (reduced from $100 effective October 1, 1994),
and Black Hawk and Cripple Creek currently impose annual fees per device of $750
and $1,200, respectively. Black Hawk and Cripple Creek also impose liquor
licensing fees, restaurant fees, and parking impact fees. Further, Anchor has
paid, and in the future may be required to pay, local parking and other
municipal "impact fees" based on the square footage of its facilities.
Significant increases in the applicable taxes or fees, or the imposition of new
taxes or fees, could have a material adverse effect on Anchor, and it is not
unreasonable to expect that such taxes or fees could be increased or new taxes
or fees imposed.
PROPRIETARY GAMES APPROVAL
Anchor is licensed in several gaming jurisdictions as a distributor or
manufacturer of gaming machines. These jurisdictions exert substantial
regulatory controls over the Company and may impose restrictions on ownership of
the Company's securities and require findings of suitability of individuals
associated with the Company. Each of the Company's games must be approved and
licensed in each jurisdiction in which it is played. Obtaining required
approvals and licenses can be time consuming and costly and there can be no
assurance of success. In addition, there can be no assurance that regulations
adopted or taxes imposed by other states will permit profitable operations by
the Company.
OTHER JURISDICTIONS
The Federal Gambling Devices Act of 1962 (the "Federal Act") makes it
unlawful, in general, for a person to manufacture, deliver, or receive gaming
machines, gaming machine type devices, and components across state lines or to
operate gaming machines unless that person has first registered with the
Attorney General of the United States. The Federal Act does not apply to the
Company's proprietary table games but does apply to the Company's proprietary
gaming machines. Anchor has registered under the Federal Act and must renew its
registration annually. In addition, various record keeping and equipment
identification requirements are imposed by the Federal Act. Violation of the
Federal Act may result in seizure and forfeiture of the equipment, as well as
other penalties. Any expansion of Anchor's gaming activities in Nevada and
Colorado may require, and any expansion into other jurisdictions would require,
additional approvals, licenses, and permits from various gaming authorities.
In August 1996, the United States Congress passed legislation creating the
National Gambling Impact and Policy Commission to conduct a comprehensive study
of all matters relating to the economic and social impact of gaming in the
United States. The legislation provides that, not later than two years after the
enactment of such legislation, the commission must issue a report to the
President and to Congress containing its findings and conclusions, together with
recommendations for legislation and administrative actions. Any such
recommendations, if enacted into law, could adversely impact the gaming industry
and have a material adverse effect on the Company's business or results of
operations. The Company is unable to predict whether this study will result in
legislation that would impose regulations on gaming industry operators,
including the Company, or whether such legislation, if any, would have a
material adverse effect on the Company. Additionally, from time to time, certain
federal legislators have proposed the imposition of a federal tax on gaming
revenues. Any such tax could have a material adverse effect on the Company's
financial condition or results of operations.
38
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information about the current
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ----------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Stuart D. Beath 38 Director
Michael B. Fulton 38 Director
Stanley E. Fulton 66 Chairman of the Board, Chief Executive Officer, and acting
Chief Financial Officer
Glen J. Hettinger 39 Director
Elizabeth F. Jones 41 Director
Thomas J. Matthews 31 Executive Vice President and Secretary
Joseph Murphy 46 Vice President Casino Operations
Michael D. Rumbolz 43 President, Chief Operating Officer, and Director
Geoffrey A. Sage 37 Corporate Controller
Garret A. Scholz 57 Director
</TABLE>
STUART D. BEATH. Mr. Beath was elected as a director of the Company in
April 1994. Mr. Beath has been a private consultant since March 1997. Mr. Beath
served as First Vice President at Stifel, Nicolaus & Company, Incorporated, an
investment bank, from April 1993 until March 1997. Prior to that time, Mr. Beath
served in the corporate finance department at A.G. Edwards & Sons, Inc. for six
years, in various capacities, with the most recent being as an officer of the
firm.
MICHAEL B. FULTON. Mr. Fulton was elected as a director of the Company in
August 1995. Mr. Fulton has served as President of IllumiQuest, Inc., a
developer of educational based entertainment products, since January 1994. Prior
to that time, Mr. Fulton served as Executive Vice President and director of
Anchor Coin, a subsidiary of the Company responsible for its gaming machine
route operations and development of the Colorado Central Station Casino, from
March 1993 to December 1993. Prior to that time, Mr. Fulton was a tax attorney
with the Internal Revenue Service from December 1990 to March 1993 and an
independent consultant of tax and corporate law from January 1989 to November
1990. Mr. Fulton is the son of the Chairman of the Board of the Company.
STANLEY E. FULTON. Mr. Fulton serves as Chairman of the Board, Chief
Executive Officer, and acting Chief Financial Officer of the Company. Prior to
the IPO, Mr. Fulton also served as President of the Company. Mr. Fulton has also
served as Chairman of the Board, President and Chief Executive Officer of Anchor
Coin, a subsidiary of the Company responsible for the Company's gaming machine
route operations and development of the Colorado Central Station Casino, since
its inception in 1988. Immediately prior to forming Anchor Coin, Mr. Fulton was
Chairman of the Board and President of Gaming and Technology, Inc., the
predecessor of Alliance Gaming Corporation.
GLEN J. HETTINGER. Mr. Hettinger was elected as a director of the Company
in August 1997. Mr. Hettinger is a partner at the law firm of Hughes & Luce,
L.L.P., Dallas, Texas, where he has practiced corporate and securities law since
1984.
ELIZABETH F. JONES. Ms. Jones was elected as a director of the Company in
April 1994. Since November 1988, Ms. Jones has been principally engaged as a
private investor. Ms. Jones is the daughter of the Chairman of the Board of the
Company.
39
<PAGE>
THOMAS J. MATTHEWS. Since January 1994, Mr. Matthews has served as
Executive Vice President of the Company. In September 1994, he was elected
Secretary of the Company. Mr. Matthews served as President of Global
Distributors, Inc. ("Global Distributors") from August 1992 to January 1994.
Prior to that time, Mr. Matthews was General Manager of Global Distributors from
1990 until 1992, and was sales director of Mikohn Gaming Corporation from 1987
until 1990.
JOSEPH MURPHY. Mr. Murphy has served as Vice President Casino Operations of
the Company since February 1996. Prior to that time, Mr. Murphy served as
General Manager of Gaming Operations of the Company since January 1994. Mr.
Murphy managed the gaming operations of Global Distributors from May 1993 until
January 1994. From 1990 until 1993, Mr. Murphy served as General Manager of
IGT's gaming machine route operations, which operated more than 1,800 machines.
Mr. Murphy held similar positions with Sunset Coin from 1989 to 1990, United
Gaming from 1988 to 1989, and IGT from 1985 to 1988.
MICHAEL D. RUMBOLZ. Mr. Rumbolz was elected as a director of the Company in
August 1995. Mr. Rumbolz serves as the President and Chief Operating Officer of
the Company, positions he has held since August 1995. Prior to joining the
Company, Mr. Rumbolz was Director of Corporate Development for Circus Circus
Enterprises, Inc. from December 1992 to July 1995. During that time, Mr. Rumbolz
was also President of Windsor Casino Limited from January to September 1994 and
Canadian Gaming & Entertainment Corp. from February to July 1995. Windsor Casino
Limited was the Circus Circus/Hilton/ Caesar's consortium that opened and
operated Windsor Casino. From June 1993 to July 1995, Mr. Rumbolz was also a
director of Darling Casino Limited, an affiliate of Circus Circus Enterprises,
Inc., responsible for new project development in Australia. Prior to that time,
Mr. Rumbolz was Executive Vice President of Anchor Coin and DD Stud, Inc.,
subsidiaries of the Company responsible for gaming machine route operations,
development of the Colorado Central Station Casino, and distribution of the
proprietary game Double Down Stud from July 1992 to December 1992. Prior to that
time, Mr. Rumbolz was an independent consultant to Donald Trump from February
1992 to June 1992, Executive Vice President of Trump Castle Associates from
January 1991 to January 1992, and President and Chief Operating Officer of Trump
Nevada, Inc. from January 1989 to January 1991. Mr. Rumbolz is a former Chairman
and Board member of the State of Nevada Gaming Control Board.
GEOFFREY A. SAGE. Mr. Sage, a certified public accountant, joined Anchor in
July 1989 and serves as Corporate Controller of the Company. Before joining the
Company, Mr. Sage was the Controller for Frontier Savings and Loan Association
in Las Vegas for one year. Prior to that time, Mr. Sage was a senior auditor at
Citibank (Nevada), N.A. for three and one-half years and an auditor in the Las
Vegas office of Laventhol & Horwath.
GARRET A. SCHOLZ. Mr. Scholz was elected as a director of the Company in
February 1994. Mr. Scholz, a private investor, was until September 1995, Vice
President Finance with McKesson Corporation, an international distributor of
pharmaceutical and health care products and provider of health care management
services. He previously was its Vice President and Treasurer and had served with
McKesson Corporation since 1973 in various financial capacities.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
ARRANGEMENTS
In July 1995, the Company entered into a five-year agreement with Michael D.
Rumbolz providing for minimum annual compensation of $460,000. Concurrent with
the IPO, the Company entered into a five-year employment agreement with each of
Thomas J. Matthews and Joseph Murphy providing for minimum annual compensation
of $175,000. Each of these agreements was amended in March 1997 to provide for
(i) base compensation of $200,000 per year; (ii) a one time bonus of $150,000 in
July 1997; (iii) annual bonuses based on the consolidated net income of Anchor;
and (iv) an additional bonus payable in the event of a change-of-control
transaction or disposition of the Company's proprietary games business
substantially as an entirety.
40
<PAGE>
Also in March 1997, the Company granted to each of Messrs. Matthews and
Murphy options to purchase 200,000 shares of Common Stock at an exercise price
of $31.875 per share. Under each option agreement, options to purchase 75,000
shares vest in twelve equal quarterly increments beginning March 31, 1999. The
options with respect to the remaining 125,000 shares vest based upon Anchor's
achieving specified growth in earnings per share in calendar years 1997 through
2001. If the specified earnings per share growth targets are not achieved, the
options vest on June 30, 2005, so long as the named persons are employed by
Anchor at that time. A maximum of 25,000 shares per year can vest under this
formula. The options have a term of ten years. Pursuant to option agreements
entered into between the Company and each of Thomas J. Matthews, Joseph Murphy
(other than the options granted to Mr. Murphy and Mr. Matthews in March 1997, as
described above), and Geoffrey A. Sage, each such officer's options will vest
and become immediately exercisable if Stanley E. Fulton is not the Chief
Executive Officer of the Company. Pursuant to an option agreement between the
Company and Michael D. Rumbolz, Mr. Rumbolz's options will vest and become
immediately exercisable upon a change in control, as defined in the agreement,
or on December 31, 1998 in the event that Mr. Rumbolz is not appointed as the
Chief Executive Officer of the Company before such date.
Each of the employment agreements described above provides that such officer
can only be terminated for "cause" as defined in the agreement, although the
agreements with Messrs. Matthews and Murphy can be terminated by the Company at
any time if the Company pays three months' severance pay, and Mr. Rumbolz's can
be terminated at any time if the Company pays one year's severance pay. The
agreements contain restrictive covenants regarding the treatment of the
Company's proprietary information. Certain key executives of the Company are not
bound by noncompetition agreements. The Company is also party to an arrangement
with one of its key employees that permits the employee to develop and sell
certain gaming machine related devices to entities not controlled by Anchor
during the term of his employment with the Company. See "Risk Factors --
Dependence on Key Personnel."
In no event will the Company be required to make to any of the foregoing
executives any payment under such agreements that would result, in the opinion
of tax counsel, in an "excess parachute payment" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended, and the imposition of an
excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended.
41
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, at September 15, 1997, certain information
with respect to the beneficial ownership of Common Stock and as adjusted to give
effect to the sale of the Common Stock offered by this Prospectus for (i) each
director of the Company; (ii) each executive officer of the Company; (iii) the
Company's directors and executive officers as a group; (iv) each stockholder
known to the Company to own beneficially more than five percent of the Common
Stock; and (v) each Selling Stockholder. Notwithstanding their family
relationships, except as disclosed in footnote (4) to the table below, each
Fulton family member disclaims beneficial ownership of the shares of Common
Stock directly or indirectly owned or controlled by all other Fulton family
members.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
BEFORE THE OFFERING (1) AFTER THE OFFERING
----------------------------- -----------------------------
NUMBER OF NUMBER OF
NAME AND ADDRESS SHARES OF PERCENT OF SHARES OF PERCENT OF
OF BENEFICIAL OWNER COMMON STOCK CLASS COMMON STOCK CLASS
- ---------------------------------------------------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Stuart Beath (2).......................................... 13,000 * 13,000 *
FMR Corp (3).............................................. 1,482,490 11.3% 1,482,490 11.3%
Michael B. Fulton (4)(5).................................. 495,300 3.8% 300,000 2.3%
Stanley E. Fulton (5)(6).................................. 6,887,544 52.4% 5,157,544 39.2%
Glen J. Hettinger......................................... - * - *
Elizabeth F. Jones (5)(7)................................. 502,500 3.8% 300,000 2.3%
Thomas J. Matthews (8).................................... 33,750 * 33,750 *
Joseph Murphy (9)......................................... 12,500 * 12,500 *
Michael D. Rumbolz (10)................................... 87,500 * 87,500 *
Geoffrey A. Sage (11)..................................... 2,500 * 2,500 *
Garret A. Scholz (12)..................................... 15,800 * 15,800 *
Deborah J. Fulton (5)(13)................................. 479,500 3.6% 300,000 2.3%
Elizabeth M. Fulton (5)................................... 170,000 1.3% 100,000 *
Stanley M. Fulton (5)(14)................................. 482,500 3.7% 300,000 2.3%
Virginia L. Fulton (5)(15)................................ 482,500 3.7% 300,000 2.3%
Lucinda Fulton Tischer (5)(16)............................ 430,000 3.3% 300,000 2.3%
All executive officers & directors as a group (10 persons)
(17)..................................................... 7,052,594 53.6% 5,322,594 40.0%
</TABLE>
- ------------------------
* Less than one percent.
(1) Unless otherwise noted, and subject to community property laws, where
applicable, the persons in the table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them. The address for each listed person is c/o Anchor Gaming, 815 Pilot
Road, Suite G, Las Vegas, Nevada 89119.
(2) Includes 1,000 shares with respect to which Mr. Beath shares voting and
dispositive power with his wife. Includes 12,000 shares that may be
acquired upon the exercise of options exercisable within the next 60 days.
(3) FMR Corp. is the holding company for an institutional investor, Fidelity
Management & Research Company. The information included herewith is based
upon publicly available information. FMR Corp.'s address is 82 Devonshire
Street, Boston, MA 02109-3614.
(4) Includes 495,300 shares before the Offering and 300,000 shares after the
Offering as to which Mr. Fulton's father, Stanley E. Fulton, exercises
voting power pursuant to an irrevocable proxy.
(5) Selling Stockholder.
(6) Includes 2,880,300 shares before the Offering and 1,808,000 shares after
the Offering owned by Stanley E. Fulton's six children and an unaffiliated
third party for which Mr. Fulton exercises voting power pursuant to
irrevocable proxies.
42
<PAGE>
(7) Includes 502,500 shares before the Offering and 300,000 shares after the
Offering as to which Ms. Jones' father, Stanley E. Fulton, exercises voting
power pursuant to an irrevocable proxy.
(8) Includes 21,250 shares that may be acquired upon the exercise of options
exercisable within the next 60 days.
(9) Includes 10,000 shares with respect to which Mr. Murphy shares voting and
dispositive power with his wife. Includes 2,500 shares that may be acquired
upon the exercise of options exercisable within the next 60 days.
(10) Includes 87,500 shares that may be acquired upon the exercise of options
exercisable within the next 60 days.
(11) Includes 2,500 shares that may be acquired upon the exercise of options
exercisable within the next 60 days.
(12) Includes 1,000 shares held in a trust for which Mr. Scholz acts as trustee.
Includes 13,800 shares that may be acquired upon the exercise of options
exercisable within the next 60 days.
(13) Includes 479,500 shares before the Offering and 300,000 shares after the
Offering as to which Ms. Fulton's father, Stanley E. Fulton, exercises
voting power pursuant to an irrevocable proxy.
(14) Includes 482,500 shares before the Offering and 300,000 shares after the
Offering as to which Mr. Fulton's father, Stanley E. Fulton, exercises
voting power pursuant to an irrevocable proxy.
(15) Includes 482,500 shares before the Offering and 300,000 shares after the
Offering as to which Ms. Fulton's father, Stanley E. Fulton, exercises
voting power pursuant to an irrevocable proxy.
(16) Includes 430,000 shares before the Offering and 300,000 shares after the
Offering as to which Ms. Tischer's father, Stanley E. Fulton, exercises
voting power pursuant to an irrevocable proxy.
(17) Includes 139,550 shares that may be acquired upon the exercise of options
exercisable within the next 60 days.
CERTAIN TRANSACTIONS
A relative of the children of Stanley E. Fulton, the principal stockholder,
Chairman of the Board, Chief Executive Officer, and acting Chief Financial
Officer of the Company, loaned $2.0 million to the Company in June 1993 for use
in connection with construction of the Colorado Central Station Casino. The
principal amount of this loan was payable in a single installment in 1998 and
bore interest at 12% payable monthly. As additional consideration for this loan,
the Company granted an option to purchase 40,000 shares of Common Stock at the
IPO price of $12.00 per share. Mr. Fulton personally guaranteed this loan. This
loan was paid in full on July 6, 1995.
At June 30, 1997, the Company had outstanding unsecured notes payable to
Stanley E. Fulton in the aggregate principal amount of $2,800,000, which is due
and payable on July 1, 1998 and bears interest at the rate of 8%. See Note 6 of
Notes to Consolidated Financial Statements.
Stanley E. Fulton owned 100% of the common stock of an Anchor slot route
location. On January 31, 1996, Stanley E. Fulton sold the location to an
unaffiliated third party. For providing the gaming machines and slot route
services, the Company received a percentage of the net win of the location
similar to other route locations. The Company held a note receivable from the
slot route operation in the amount of $284,704 at January 31, 1996 of which
$257,562 was assumed by the new owner. The remaining balance of the loan due
from Stanley E. Fulton at June 30, 1996 of $27,142 was paid in full on July 11,
1996. The slot route operation, under the ownership of Stanley E. Fulton,
accounted for $295,502 and $180,822 of gaming revenue during the years ended
June 30, 1995 and 1996, respectively and $279,059 and $145,684 of route costs
during the years ended June 30, 1995 and 1996, respectively.
In August 1996, the Company made certain payments to an entity controlled by
an employee of the Company. These funds were used to repay a debt of $500,000
owed by the employee and his affiliate to Stanley E. Fulton.
Mr. Hettinger is a director of the Company and a partner at Hughes & Luce,
L.L.P., which has rendered legal services to the Company in the past and is
expected to continue to do so in the future.
43
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock, $.01
par value per share. At September 15, 1997, 12,958,107 shares of Common Stock
are issued and outstanding and beneficially owned by approximately 5,000
stockholders. An additional 1,069,950 shares are reserved for issuance in
connection with employee, director, and other stock options at an average
exercise price of $26.92 per share at September 15, 1997.
Subject to the rights of the holders of any outstanding shares of preferred
stock and any restrictions that may be imposed by any lender to the Company,
holders of Common Stock are entitled to receive such dividends, if any, as may
be declared by the board of directors out of legally available funds. In the
event of the liquidation, dissolution, or winding up of the Company, holders of
Common Stock are entitled to share equally and ratably, based on the number of
shares held, in the assets, if any, remaining after payment of all of the
Company's debts and liabilities and the liquidation preference of any
outstanding preferred stock. Certain gaming statutes and regulations may limit
the rights of holders of Common Stock under certain circumstances. See
"Regulation."
Holders of Common Stock are entitled to one vote per share for each share
held of record on any matter submitted to the holders of Common Stock for a
vote. Because holders of Common Stock do not have cumulative voting rights, the
holders of a majority of the shares of Common Stock represented at a meeting can
elect all the directors. Holders of Common Stock do not have preemptive rights
to subscribe for or purchase any additional shares of capital stock issued by
the Company. All outstanding shares of the Common Stock are, and the shares of
Common Stock offered by this Prospectus will be, when issued, duly authorized,
validly issued, fully paid, and nonassessable.
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of preferred stock, $.01
par value per share (the "Preferred Stock"), in one or more series, and to
designate the rights, preferences, limitations, and restrictions of and upon
shares of each series, including voting, redemption, and conversion rights. The
board of directors also may designate dividend rights and preferences in
liquidation. The board of directors of Anchor has authorized the Company to
designate a series of Series A Junior Participating Preferred Stock in
connection with the Rights Plan discussed below.
In connection with the authorization of the Rights Plan, the board of
directors has authorized the designation of 50,000 shares of Preferred Stock as
Series A Junior Participating Preferred Stock (the "Series A Preferred"). The
shares of Series A Preferred have been reserved for issuance pursuant to the
Rights Plan. The following summarizes the terms of the Series A Preferred.
The holders of shares of Series A Preferred will generally be entitled to
receive quarterly dividends payable in cash commencing on the first quarterly
dividend payment date after the first issuance of Series A Preferred, in an
amount per share (rounded to the nearest cent) equal to the greater of (i) $0.01
or (ii) subject to adjustment, an amount equal to one thousand times the per
share amount of any distributions or dividends made with respect to the Common
Stock.
Subject to adjustment, each share of Series A Preferred will entitle the
holder to a number of votes on all matters submitted to a vote of the
stockholders of the Company equal to one thousand times the number of votes per
share to which shares of Common Stock are entitled. Except as otherwise provided
by law, the holders of shares of Series A Preferred and the holders of shares of
Common Stock will generally vote together as one class on all matters submitted
to a vote of stockholders of the Company. If at any time dividends on any Series
A Preferred are in arrears in an amount equal to six quarterly dividends, the
occurrence of such contingency will mark the beginning of a period (a "default
period") that will extend until such time when all accrued and unpaid dividends
for all previous quarterly dividend periods and for
44
<PAGE>
the current quarterly dividend period on all shares of Series A Preferred then
outstanding have been declared and paid or set apart for payment. During each
default period, all holders of Series A Preferred Stock with dividends in
arrears in an amount equal to six quarterly dividends thereon, voting as a
class, irrespective of series, will have the right to elect two directors.
During the period of dividend arrearages the Company will be prevented from
declaring dividends on or making distributions to, or repurchasing, redeeming,
or otherwise acquiring, any stock ranking on parity with or junior to the Series
A Preferred.
Upon any liquidation, dissolution, or winding up of the Company, no
distribution will be made to the holders of shares of stock ranking junior to
the Series A Preferred unless, prior thereto, the holders of shares of Series A
Preferred have received an amount equal to one thousand times the Purchase Price
for the Rights referred to below, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment (the "Series A Liquidation Preference"). Following the payment of
the full amount of the Series A Liquidation Preference, no additional
distributions will be made to the holders of shares of Series A Preferred
unless, prior thereto, the holders of shares of Common Stock have received an
amount per share (the "Common Adjustment") equal to the quotient obtained by
dividing (i) the Series A Liquidation Preference by (ii) 1,000 (as appropriately
adjusted). Following the payment of the full amount of the Series A Liquidation
Preference and the Common Adjustment in respect of all outstanding shares of
Series A Preferred and Common Stock, respectively, holders of Series A Preferred
and holders of shares of Common Stock will receive their ratable and
proportionate share of the remaining assets to be distributed.
It is not possible to state the actual effect of the authorization and
issuance of other series of preferred stock on the rights of holders of Common
Stock until the board of directors determines the specific terms, rights, and
preferences of a series of such preferred stock. Such effects, however, might
include, among other things, restricting dividends on the Common Stock, diluting
the voting power of the Common Stock, or impairing liquidation rights of the
Common Stock. Other series of preferred stock could be authorized and issued by
the Company without further action by holders of Common Stock. In addition,
under certain circumstances, the issuance of preferred stock may render more
difficult or tend to discourage a merger, tender offer, or proxy contest, the
assumption of control by a holder of a large block of the Company's securities,
or the removal of incumbent management. See "-- Certain Provisions Relating to
Changes in Control." No shares of preferred stock are currently issued or
outstanding.
RIGHTS PLAN
The board of directors of Anchor has authorized the Company to enter into a
Stockholder Rights Plan (the "Rights Plan") providing that one right (a "Right")
will be attached to each share of Common Stock as of a record date to be
determined by the board of directors (the "Record Date"). Each Right will
entitle the registered holder to purchase from the Company a unit (a "Unit")
consisting of one one-thousandth of a share of Series A Preferred at a Purchase
Price of $400.00 per Unit (the "Purchase Price"), subject to adjustment. The
description and terms of the Rights are to be set forth in the Rights Agreement
(the "Rights Agreement"), between the Company and a bank or financial
institution to be selected by the Company as Rights Agent (the "Rights Agent").
Initially, the Rights will be attached to all Common Stock certificates
representing shares outstanding as of the Record Date, and no separate
certificate (a "Rights Certificate") will be distributed. The Rights will
separate from the Common Stock and a "Distribution Date" will occur upon the
earlier of (i) 10 days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of Common Stock (the "Stock Acquisition Date"); (ii) 10
business days following the commencement of a tender offer or exchange offer
that would result in a person or group beneficially owning 15% or more of such
outstanding shares of Common Stock; or (iii) 10 business days after the board
45
<PAGE>
of directors of the Company determines that any person or entity or group has
become the beneficial owner of an amount of Common Stock that the board of
directors determines to be substantial (which amount will in no event be less
than 10% of the shares of Common Stock outstanding) and that (a) such person or
entity or group intends to cause the Company to repurchase the Common Stock
beneficially owned by such person or entity or group or to exert pressure
against the Company to take any action or enter into any transaction or series
of transactions with the intent or the effect of providing such person or entity
or group with short-term gains or profits under circumstances in which the board
of directors determines that the long-term interests of the Company and its
stockholders would not be served by taking such action or entering into such
transactions or series of transactions, or (b) beneficial ownership by such
person or entity or group is reasonably likely to have a material adverse effect
on the business, competitive position, prospects, or financial condition of the
Company and its subsidiaries (an "Adverse Person"). Until the Distribution Date,
(i) the Rights will be evidenced by the Common Stock certificates and will be
transferred with and only with such Common Stock certificates; (ii) new Common
Stock certificates will contain a notation incorporating the Rights Agreement by
reference; and (iii) the surrender for transfer of any certificates for Common
Stock outstanding will also constitute the transfer of the Rights associated
with the Common Stock represented by such certificate. The Rights Agreement
provides that Stanley E. Fulton, and certain of his transferees, donees, or
successors, who together were beneficial owners of more than 52.4% of the Common
Stock of the Company outstanding on September 15, 1997, are excluded from the
definition of "Acquiring Person." Mr. Fulton is also excluded from the
definition of "Adverse Person."
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on the tenth anniversary of the Rights Agreement,
unless earlier redeemed by the Company as described below.
As soon as practicable after the Distribution Date, Rights Certificates will
be mailed to holders of record of the Common Stock as of the close of business
on the Distribution Date and, thereafter, the separate Rights Certificates alone
will represent the Rights. Except as otherwise determined by the board of
directors, only shares of Common Stock outstanding prior to the Distribution
Date will be issued with Rights.
In the event that (i) the Company is the surviving corporation in a merger
or combination with any Acquiring Person or any Adverse Person, or any associate
or affiliate of any Acquiring Person or Adverse Person, and its Common Stock
remains outstanding; (ii) any Acquiring Person or any Adverse Person, or any
associate or affiliate of any Acquiring Person or Adverse Person, engages in one
or more "self-dealing" transactions to be set forth in the Rights Agreement;
(iii) an Acquiring Person becomes the beneficial owner of 15% or more of the
then outstanding shares of Common Stock (unless such acquisition is made
pursuant to a tender or exchange offer for all outstanding shares of the
Company, at a price determined by a majority of the Continuing Directors of the
Company (as defined below) who are not representatives, nominees, affiliates, or
associates of an Acquiring Person, to be fair and otherwise in the best interest
of the Company and its stockholders); (iv) during such time as there is an
Acquiring Person or Adverse Person an event occurs that results in such
Acquiring Person's or Adverse Person's ownership interest being increased by
more than 1% (E.G., a reverse stock split or recapitalization); or (v) the board
of directors determines that a person is an Adverse Person, each holder of a
Right will thereafter have the right to receive, upon exercise, Common Stock
(or, in certain circumstances, cash, property, or other securities of the
Company), having a value equal to two times the Exercise Price of the Right. The
Exercise Price is the Purchase Price times the number of shares of Common Stock
associated with each Right (initially, one). Notwithstanding any of the
foregoing, following the occurrence of any of the events set forth in this
paragraph (the "Flip-In Events"), all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person or any Adverse Person, or an associate or affiliate of any
Acquiring Person or Adverse Person, will be null and void. However, Rights are
not exercisable following the occurrence of any of the Flip-In Events set forth
above until such time as the Rights are no longer redeemable by the Company as
set forth below.
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<PAGE>
In the event that following the Stock Acquisition Date, (i) the Company is
acquired in a merger or consolidation in which the Company is not the surviving
corporation (other than a merger that follows a tender offer that the board of
directors has found to be fair to the stockholders of the Company, as described
above); or (ii) 50% or more of the Company's assets or earning power is sold or
transferred, each holder of a Right (except Rights which have previously been
voided as set forth above) will thereafter have the right to receive, upon
exercise of the Right, Common Stock of the acquiring company having a value
equal to two times the Exercise Price of the Right.
The Purchase Price payable, and the number of Units of Series A Preferred or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination, or reclassification of, the Series A
Preferred; (ii) if holders of the Series A Preferred are granted certain rights
or warrants to subscribe for Series A Preferred or convertible securities at
less than the current market price of the Series A Preferred; or (iii) upon the
distribution to holders of the Series A Preferred of evidences of indebtedness
or assets (excluding regular quarterly cash dividends) or of subscription rights
or warrants (other than those referred to above).
With certain exceptions, no adjustments in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Series A Preferred on the
last trading date prior to the date of exercise.
At any time until 10 days following the Stock Acquisition Date, the Company
may redeem the Rights in whole, but not in part, at a price of $.01 per Right.
The ten day redemption period may be extended by the board of directors so long
as the Rights are still redeemable. Under certain circumstances, the decision to
redeem will require the concurrence of a majority of the Continuing Directors
referred to below. Immediately upon the action of the board of directors
ordering redemption of the Rights, the Rights will terminate and the only right
of the holders of Rights will be to receive the $.01 redemption price.
The term "Continuing Director" means any member of the board of directors of
the Company who was a member of the board of directors prior to the adoption of
the Rights Plan and any person who is subsequently elected to the board of
directors if such person is recommended or approved by a majority of the
Continuing Directors, but will not include an Acquiring Person or any Adverse
Person, or an affiliate or associate of an Acquiring Person or Adverse Person,
or any representative of the foregoing entities.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends. While the distribution of the Rights will not be
taxable to stockholders or to the Company, stockholders may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company as set
forth above.
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the
board of directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
board of directors (in certain circumstances, with the concurrence of the
Continuing Directors) in order to cure any ambiguity, to make changes which do
not adversely affect the interests of holders of Rights (excluding the interest
of any Acquiring Person or any Adverse Person), or to shorten or lengthen any
time period under the Rights Agreement; provided that no amendment to adjust the
time period governing redemption will be made at such time as the Rights are not
redeemable.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in certain circumstances. Accordingly, the existence of the Rights may deter
certain acquirors from making takeover proposals or tender offers. However, the
Rights
47
<PAGE>
are not intended to prevent a takeover, but rather are designed to enhance the
ability of the board of directors to negotiate with an acquiror on behalf of all
of the shareholders.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services has been appointed as the transfer agent
and registrar for the Common Stock.
CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL
The Company's Articles of Incorporation and Bylaws, described below, contain
several provisions that may make the acquisition of control of the Company by
means of a tender offer, open market purchases, proxy contest, or otherwise more
difficult. In addition, upon completion of this Offering, the officers and
directors of the Company and members of their respective families will own
beneficially approximately 40.5% of the outstanding Common Stock and, therefore,
will be able to exert substantial influence over substantially all actions
requiring stockholder approval, including a proposed acquisition or the adoption
of additional charter and bylaw provisions that could make acquisition of
control of the Company more difficult. In addition, all six of Stanley E.
Fulton's children and a third party, who, after giving effect to this Offering,
will own a total of 1,808,000 shares of Common Stock, granted irrevocable
proxies to Mr. Fulton, which will allow him to vote such shares of Common Stock
through December 31, 1998. As a result, Mr. Fulton will have voting control of
39.2% of the Common Stock to be outstanding after this Offering.
AUTHORIZED BUT UNISSUED STOCK. As of the closing of this Offering, after
giving effect to the sale of the shares offered hereby, the Company will have
more than 35,900,000 authorized but unissued and unreserved shares of Common
Stock and 950,000 authorized, unissued, and unreserved shares of preferred stock
(after giving effect to the authorization of the Series A Preferred in
connection with the Rights Agreement). These additional shares may be utilized
for a variety of corporate purposes, including future public or private
offerings to raise additional capital and for facilitating corporate
acquisitions. The Company does not currently have any plans to issue additional
shares of Common Stock or Preferred Stock. One of the effects of authorized but
unissued shares of capital stock may be to enable the board of directors to
render more difficult or discourage an attempt to obtain control of the Company
by means of a merger, tender offer, proxy contest, or otherwise, and thereby to
protect the continuity of the Company's management. If, in the due exercise of
its fiduciary obligations, for example, the board of directors determines that a
takeover proposal is not in the Company's best interest, such shares could be
issued by the board of directors without stockholder approval in one or more
private transactions or other transactions that might prevent or render more
difficult or costly the completion of the takeover transaction by diluting the
voting or other rights of the proposed acquirer or insurgent stockholder group,
by creating a substantial voting block in institutional or other hands that
might undertake to support the position of the incumbent board of directors, by
effecting an acquisition that might complicate or preclude the takeover, or
otherwise.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS. The Company's Bylaws
establish advance notice procedures with regard to stockholder proposals and the
nomination, other than by or at the direction of the board of directors or a
committee thereof, of candidates for election as directors. The Company may
reject a stockholder proposal or nomination that is not made in accordance with
such procedures.
AMENDMENT OF THE BYLAWS. The Company's Articles of Incorporation provide
that the Bylaws may be amended only by the board of directors or by an
affirmative vote of the holders of at least two-thirds of the outstanding shares
of capital stock then entitled to vote on the matter. These voting requirements
will have the effect of making more difficult any amendment to the Bylaws by the
Company's stockholders, even if a majority of the stockholders favors such an
amendment.
48
<PAGE>
APPROVAL OF NEW DIRECTORS AND STOCKHOLDERS. The Company's Articles of
Incorporation provide that newly elected directors may be required to be found
suitable or qualified by state gaming authorities with jurisdiction over the
Company. In addition, in general, any person who acquires or proposes to acquire
more than specified percentages of the outstanding shares of Common Stock (and
other stockholders, under certain circumstances) must be found suitable or
qualified by the Nevada Commission and the Colorado Commission. Anchor's
Articles of Incorporation also include a statement that all transfers of voting
securities are subject to the regulations of each regulatory body to which the
Company's activities are subject and detail the possibility of a repurchase if a
stockholder is found unsuitable. The gaming laws and regulations of Nevada and
Colorado, as well as other jurisdictions in which the Company conducts or may
conduct business, include numerous other provisions that may make it difficult
for a third party to acquire control of Anchor. See "Regulation."
NEVADA LEGISLATION
Nevada's "Combination with Interested Stockholders Statute" and "Control
Share Acquisition Statute" may have the effect of delaying or making it more
difficult to effect a change in control of the Company.
The Combination with Interested Stockholders Statute prevents an "interested
stockholder" and a covered Nevada corporation from entering into a
"combination," unless certain conditions are met. A "combination" means any
merger or consolidation with an "interested stockholder," or any sale, lease,
exchange, mortgage, pledge, transfer, or other disposition, in one transaction
or a series of transactions with an "interested stockholder," having (i) an
aggregate market value equal to five percent or more of the aggregate market
value of the assets of the corporation; (ii) an aggregate market value equal to
five percent or more of the aggregate market value of all outstanding shares of
the corporation; or (iii) representing 10% or more of the earning power or net
income of the corporation, or an affiliate or associate thereof. A corporation
to which the statute applies may not engage in a "combination" within five years
after the interested stockholder acquired such person's shares unless the
combination or purchase is approved by the board of directors before the
interested stockholder acquires such shares. If this approval is not obtained,
then after the expiration of the five-year period, the business combination may
be consummated with the approval of the board of directors or a majority of the
voting power held by disinterested stockholders, or if the consideration to be
paid by the interested stockholder is at least equal to the higher of (i) the
highest price per share paid by the interested stockholder within the five years
immediately preceding the date of the announcement of the combination or in the
transaction in which such person became an interested stockholder, whichever is
higher; (ii) the market value per common share on the date of announcement of
the combination or the date the interested stockholder acquired the shares,
whichever is higher; or (iii) if higher for the holders of preferred stock, the
highest liquidation value of the preferred stock.
Nevada's Control Share Acquisition Statute prohibits an acquirer, under
certain circumstances, from voting shares of a target corporation's stock after
crossing certain threshold ownership percentages, unless the acquirer obtains
the approval of the target corporation's disinterested stockholders. The Control
Share Acquisition Statute specifies three thresholds: one-fifth or more but less
than one-third, one-third but less than a majority, and a majority or more, of
the outstanding voting power. All other stockholders who do not vote in favor of
authorizing voting rights to the Control Shares are entitled to demand payment
for the fair value of their shares. The board of directors is to notify the
stockholders as soon as practicable after such an event has occurred that they
have the right to receive the fair value of their shares in accordance with
statutory procedures established generally for dissenters' rights.
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement"), the Selling Stockholders have agreed to sell to
the underwriters named below (the "Underwriters"), and each of the Underwriters,
for whom BT Alex. Brown Incorporated, Morgan Stanley & Co. Incorporated, and
Raymond James & Associates, Inc. are acting as representatives (the
"Representatives"), has severally agreed to purchase from the Selling
Stockholders, the aggregate number of shares of Common Stock (the "Shares") set
forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
BT Alex. Brown Incorporated..........................................................................
Morgan Stanley & Co. Incorporated....................................................................
Raymond James & Associates, Inc. ....................................................................
----------
Total............................................................................................ 1,800,000
----------
----------
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Shares offered by
this Prospectus (other than those subject to the over-allotment option described
below) if any such Shares are purchased. In the event of a default by the
Underwriters, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
Stanley E. Fulton has granted to the Underwriters an option, exercisable by
the Representatives during the 30-day period after the date of this Prospectus,
to purchase up to 270,000 shares of Common Stock at the same price per share as
the initial shares of Common Stock to be purchased by the Underwriters. The
Representatives may exercise such option only to cover over-allotments in the
sale of the shares of Common Stock. To the extent that the Representatives
exercise such option, the Underwriters will have a firm commitment, subject to
certain conditions, to purchase the same proportion of such additional shares of
Common Stock as the number of shares of Common Stock to be purchased and offered
by such Underwriters in the above table bears to the total number of shares in
the above table.
The Selling Stockholders have been advised by the Representatives that the
Underwriters propose initially to offer the Shares to the public at the offering
price set forth on the cover page of this Prospectus, and through the
Representatives to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
Offering, the public offering price and other selling terms may be changed.
The Selling Stockholders, holding in the aggregate approximately 39.9% of
the shares of Common Stock outstanding after completion of this Offering
(including options and warrants of such persons exercisable during the period of
the agreement), have agreed that they will not offer, sell, contract to sell, or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or any
interests therein, or any
50
<PAGE>
securities convertible into, or exchangeable for, shares of Common Stock, or
rights to acquire the same, for a period of 90 days from the date of this
Prospectus without the prior written consent of the Representatives, except
pursuant to the Underwriting Agreement.
The Company and Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
In connection with the Offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions, "passive" market making, and purchases to cover
syndicate short positions created in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the Common Stock.
Syndicate short positions involve the sale by the Underwriters of a greater
number of shares of Common Stock than they are required to purchase from the
Selling Stockholders in the Offering. The Underwriters also may impose a penalty
bid, whereby the syndicate may reclaim selling concessions allowed to syndicate
members or other broker dealers in respect of the Common Stock sold in the
Offering for their account if the syndicate repurchases the shares in
stabilizing or covering transactions. These activities may stabilize, maintain,
or otherwise affect the market price of the Common Stock, which may be higher
than the price that might otherwise prevail in the open market. These
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
As permitted by Rule 103 of Regulation M under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), Underwriters or prospective
Underwriters that are market makers (passive market makers) in the Common Stock
may make bids for or purchases of shares of Common Stock on the Nasdaq National
Market until such time, if any, when a stabilizing bid for such securities has
been made. Rule 103 generally provides that (i) a passive market maker's net
daily purchases of the Common Stock may not exceed 30% of its average daily
trading volume in such securities for the two full consecutive calendar months
(or any 60 consecutive days ending within the 10 days) immediately preceding the
filing date of the registration statement of which this Prospectus forms a part;
(ii) a passive market maker may not effect transactions or display bids for the
Common Stock at a price that exceeds the highest independent bid for shares of
Common Stock by persons who are not passive market makers; and (iii) bids made
by passive market makers must be identified as such.
Each Representative has represented and agreed that (i) it will not offer or
sell any shares of Common Stock to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding, managing,
or disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances that will not involve an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995 ("the Regulations"); (ii) it will comply with all
applicable provisions of the Financial Services Act 1986 and the Regulations
with respect to anything done by it in relation to the shares of Common Stock
in, from, or otherwise involving the United Kingdom; and (iii) it will only
issue or pass on to any person in the United Kingdom any document received by it
in connection with the offering of the shares of Common Stock if that person is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction by the Selling
Stockholders, the Company, or the Representatives that would permit an offering
to the general public of the shares of Common Stock offered by this Prospectus
in any jurisdiction other than the United States.
From time to time, BTAlex.Brown Incorporated has provided investment banking
services to the Company, including acting as lead manager in the Company's
Secondary Offering in April 1996, for which it has received customary
underwriting fees. From time to time, Morgan Stanley & Co. Incorporated and
51
<PAGE>
Raymond James & Associates, Inc. also have provided investment banking services
to the Company for which they have received customary fees.
LEGAL MATTERS
The validity of the shares of Common Stock offered by this Prospectus and
certain legal matters in connection with the Offering for the Selling
Stockholders will be passed upon by Hughes & Luce, L.L.P., Dallas, Texas. Glen
Hettinger, a member of the board of directors of the Company, is a partner in
Hughes & Luce, L.L.P. and the beneficial owner of options to purchase 25,000
shares of Common Stock. Certain legal matters in connection with the Offering
will be passed upon for the Underwriters by Cahill Gordon & Reindel (a
partnership including a professional corporation), New York, New York.
EXPERTS
The consolidated financial statements of Anchor Gaming and subsidiaries as
of June 30, 1996 and 1997, and for each of the three years in the period ended
June 30, 1997 included in this Prospectus, and the related financial statement
schedule included elsewhere in the registration statement and the consolidated
financial statements as of June 30, 1995 and 1996, and for each of the three
years in the period ended June 30, 1996 incorporated by reference in the
Registration Statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports which are included and incorporated by
reference herein, and have been so included and incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
The information provided under the caption "Business -- Proprietary Games --
Intellectual Property Rights" and "Risk Factors -- Risks of Proprietary Games"
has been reviewed by Daniel P. Burke, Hauppauge, New York, special patent
counsel to the Company, and is included in this Prospectus in reliance on his
authority as an expert in intellectual property law.
52
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements, information
statements, and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements, and other information filed
by the Company with the Commission may be inspected without charge at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and will also be available for inspection
and copying at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, New York 10048, and the Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials may be obtained from the Public Reference Section of the Commission
upon payment of certain prescribed fees. Electronic registration statements, as
well as reports, proxy, and information statements, and other information made
through the Electronic Data Gathering, Analysis, and Retrieval system are
publicly available through the Commission's web site (http://www.sec.gov), which
is maintained by the Commission.
The Company has filed with the Commission a Registration Statement (which
term encompasses any amendment to the Registration Statement) under the
Securities Act with respect to the Common Stock offered by this Prospectus. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto, to which reference is hereby made. With respect to each
contract, agreement, or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a detailed description of the
matter involved.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission (File No. 0-23124)
pursuant to the Exchange Act are incorporated in this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1996.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1996, December 31, 1996, and March 30, 1997.
3. The Company's Current Report on Form 8-K dated September 10, 1997.
4. All other documents filed by the Company pursuant to Sections 13(a),
13(c), 14, or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the Offering.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14, or 15(d) of the Exchange Act prior to the termination of the Offering
will be deemed to be incorporated by reference in this Prospectus and will be
part of this Prospectus from the date of filing of such documents. Any statement
contained in this Prospectus or in any document incorporated or deemed to be
incorporated by reference in this Prospectus will be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus or in any subsequently filed document that also is
or is deemed to be incorporated by reference in this Prospectus modifies or
supersedes such statement. Any statement so modified or superseded will not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any document described
herein (not including exhibits to those documents unless such exhibits are
incorporated by reference into the information incorporated into this
Prospectus). Requests for such copies should be directed to Anchor Gaming, 815
Pilot Road, Suite G, Las Vegas, Nevada 89119, Attention: Corporate Secretary.
53
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997................................................... F-3
Consolidated Statements of Income for the Years Ended June 30, 1995, 1996, and 1997........................ F-4
Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1995, 1996, and 1997.......... F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1995, 1996, and 1997.................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Anchor Gaming and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Anchor
Gaming and subsidiaries (the "Company") as of June 30, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended June 30, 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
misstatements. 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 principals 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Anchor Gaming and subsidiaries
at June 30, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended June 30, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
August 1, 1997
F-2
<PAGE>
ANCHOR GAMING
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................................... $ 78,112,530 $ 66,427,369
Accounts receivable, net....................................................... 4,720,689 6,358,052
Current portion of notes receivable, net....................................... 881,173 45,619
Inventory...................................................................... 3,197,955 3,196,918
Prepaid expenses............................................................... 1,739,263 1,835,913
Other current assets........................................................... 300,761 400,180
-------------- --------------
Total current assets....................................................... 88,952,371 78,264,051
Property and equipment, net...................................................... 57,776,237 85,033,436
Long-term notes receivable, net.................................................. 311,856 1,543,159
Intangible assets, net........................................................... 2,054,710 2,128,306
Deposits and other............................................................... 13,216,623 21,907,417
-------------- --------------
Total assets............................................................... $ 162,311,797 $ 188,876,369
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion, long-term notes payable....................................... $ 100,000 $ --
Accounts payable............................................................... 4,574,213 2,663,156
Accrued salaries, wages and vacation pay....................................... 2,488,014 2,712,764
Income tax payable............................................................. 281,886 2,138,934
Other current liabilities...................................................... 3,530,130 6,103,394
-------------- --------------
Total current liabilities.................................................. 10,974,243 13,618,248
Long-term notes payable, principal stockholder................................... 2,800,000 2,800,000
Long-term notes payable, net of current portion.................................. 850,000 --
Other long-term liabilities...................................................... 707,318 143,691
Minority interest in consolidated subsidiary..................................... 672,955 983,562
-------------- --------------
Total liabilities and minority interest in consolidated subsidiary......... 16,004,516 17,545,501
-------------- --------------
Commitments and contingencies.................................................... -- --
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, 0 shares issued
and outstanding at June 30, 1996 and 1997.................................... -- --
Common stock, $.01 par value, 25,000,000 shares authorized, 13,474,150 issued,
and 13,283,382 outstanding at June 30, 1996; 50,000,000 shares authorized,
13,579,575 issued, and 13,052,807 outstanding at June 30, 1997............... 134,742 135,796
Additional paid-in capital..................................................... 104,448,080 107,267,684
Treasury stock at cost, 190,768 shares at June 30, 1996, 526,768 shares at June
30, 1997..................................................................... (3,095,830) (16,569,329)
Retained earnings.............................................................. 44,820,289 80,496,717
-------------- --------------
Total stockholders' equity................................................. 146,307,281 171,330,868
-------------- --------------
Total liabilities and stockholders' equity................................. $ 162,311,797 $ 188,876,369
-------------- --------------
-------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ANCHOR GAMING
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Casino operations............................................. $ 56,183,629 $ 65,125,194 $ 69,223,321
Proprietary games operations.................................. 14,158,737 21,457,135 49,715,779
Route operations.............................................. 25,818,170 28,650,989 33,509,497
Food and beverage............................................. 1,250,593 1,233,003 1,300,002
-------------- -------------- --------------
Total revenues.............................................. 97,411,129 116,466,321 153,748,599
-------------- -------------- --------------
Costs and expenses:
Casino operations............................................. 21,500,172 26,830,475 29,100,285
Proprietary games operations.................................. 9,850,963 12,113,595 11,039,227
Route operations.............................................. 15,659,336 17,158,172 19,904,608
Food and beverage............................................. 1,386,438 1,300,012 1,431,734
Selling, general and administrative........................... 20,949,047 21,073,631 28,163,608
Project cost write-downs...................................... -- -- 2,116,968
Depreciation and amortization................................. 3,215,017 4,109,835 8,798,163
-------------- -------------- --------------
Total costs and expenses.................................... 72,560,973 82,585,720 100,554,593
-------------- -------------- --------------
Income from operations.......................................... 24,850,156 33,880,601 53,194,006
-------------- -------------- --------------
Other income (expense):
Interest income............................................... 1,105,212 2,028,347 3,792,739
Interest expense.............................................. (731,954) (428,991) (287,711)
Other income.................................................. 405,831 260,439 288,703
Minority interest in earnings of consolidated subsidiary...... (162,262) (217,793) (310,607)
-------------- -------------- --------------
Total other income (expense)................................ 616,827 1,642,002 3,483,124
-------------- -------------- --------------
Income before provision for income taxes........................ 25,466,983 35,522,603 56,677,130
Income tax provision............................................ 9,486,451 13,187,559 21,000,702
-------------- -------------- --------------
Net income...................................................... $ 15,980,532 $ 22,335,044 $ 35,676,428
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average common and common equivalent shares
outstanding................................................... 11,446,646 12,153,419 13,691,158
-------------- -------------- --------------
-------------- -------------- --------------
Earnings per common and common equivalent share................. $ 1.40 $ 1.84 $ 2.61
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ANCHOR GAMING
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL
---------------------- ---------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ---------- --------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -- July 1, 1994..... 11,377,100 $ 113,771 (163,789) $(1,799,830) $42,181,989 $6,504,713 $47,000,643
Stock issued for exercise
of options.............. 128,450 1,285 1,544,615 1,545,900
Tax effects of stock
option transactions..... 304,495 304,495
Net income................ 15,980,532 15,980,532
---------- ---------- --------- ----------- ------------- ---------- -----------
Balance -- June 30, 1995.... 11,505,550 115,056 (163,789) (1,799,830) 44,031,099 22,485,245 64,831,570
Stock issued for exercise
of warrants and
options................. 418,600 4,186 (26,979) (1,296,000) 5,694,414 4,402,600
Shares issued in public
offering................ 1,550,000 15,500 53,859,015 53,874,515
Tax effects of stock
option transactions..... 863,552 863,552
Net income................ 22,335,044 22,335,044
---------- ---------- --------- ----------- ------------- ---------- -----------
Balance -- June 30, 1996.... 13,474,150 134,742 (190,768) (3,095,830) 104,448,080 44,820,289 146,307,281
Stock issued for exercise
of warrants and
options................. 105,425 1,054 1,285,403 1,286,457
Treasury shares
purchased............... (336,000) (13,473,499) (13,473,499)
Tax effects of stock
option transactions..... 1,534,201 1,534,201
Net income................ 35,676,428 35,676,428
---------- ---------- --------- ----------- ------------- ---------- -----------
Balance -- June 30, 1997.... 13,579,575 $ 135,796 (526,768) $(16,569,329) $107,267,684 $80,496,717 $171,330,868
---------- ---------- --------- ----------- ------------- ---------- -----------
---------- ---------- --------- ----------- ------------- ---------- -----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ANCHOR GAMING
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................................ $ 15,980,532 $ 22,335,044 $ 35,676,428
------------ ------------ ------------
Adjustments to reconcile net income to net cash provided by operating activities:
(Gain) loss on disposal of assets, including project cost write-downs........... (140,022) -- 2,208,878
Depreciation and amortization................................................... 3,337,356 4,085,573 8,955,446
Provision for doubtful accounts and notes....................................... 10,000 105,000 364,000
Minority interest in earnings of consolidated subsidiary........................ 162,262 217,793 310,607
(Increase) decrease in assets:
Accounts receivable............................................................. (1,206,323) (1,802,054) (2,001,363)
Inventory....................................................................... (472,432) (842,765) 1,037
Other current assets............................................................ 836,890 34,772 (83,898)
Prepaid expenses................................................................ 40,788 (105,769) (96,650)
Deposits and other assets....................................................... 1,490,739 58,925 (5,606,169)
Increase (decrease) in liabilities:
Accounts payable................................................................ 828,756 2,763,320 (1,911,057)
Accrued salaries, wages and vacation pay........................................ 593,835 380,048 224,750
Income tax payable.............................................................. 1,173,316 776,683 2,955,801
Other liabilities............................................................... 1,015,529 762,794 2,394,423
------------ ------------ ------------
Total adjustments............................................................. 7,670,694 6,434,320 7,715,805
------------ ------------ ------------
Net cash provided by operating activities........................................... 23,651,226 28,769,364 43,392,233
------------ ------------ ------------
Cash flows from investing activities:
Acquisition and construction of property and equipment............................ (7,834,258) (27,916,341) (38,108,284)
Expenditures for intangible assets................................................ (250,000) (274,013) (488,715)
Proceeds from sale of equipment................................................... 514,166 530,377 117,254
Issuance of notes receivable...................................................... (252,557) (114,614) (1,405,157)
Principal reductions on notes receivable.......................................... 973,243 947,678 1,009,408
Payments to extend operating leases............................................... (1,750,000) (5,000,000) --
Advances to joint venture......................................................... -- -- (3,100,000)
------------ ------------ ------------
Net cash used in investing activities........................................... (8,599,406) (31,826,913) (41,975,494)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from sale of stock and warrants...................................... 1,545,900 58,277,115 1,321,600
Treasury stock purchases.......................................................... -- -- (13,473,500)
Principal payments on loans from related parties.................................. (937,393) (3,189,447) --
Principal payments on other loans................................................. -- (50,000) (950,000)
------------ ------------ ------------
Net cash provided by financing activities....................................... 608,507 55,037,668 (13,101,900)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents................................ 15,660,327 51,980,119 (11,685,161)
Cash and cash equivalents, beginning of period...................................... 10,472,084 26,132,411 78,112,530
------------ ------------ ------------
Cash and cash equivalents, end of period............................................ $ 26,132,411 $ 78,112,530 $ 66,427,369
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosure of cash flow information:
Cash paid for interest............................................................ $ 636,602 $ 392,643 $ 257,994
------------ ------------ ------------
------------ ------------ ------------
Cash paid for income taxes........................................................ $ 7,710,000 $ 12,404,763 $ 18,044,900
------------ ------------ ------------
------------ ------------ ------------
Supplemental schedule of noncash investing and financing transactions:
Stock issued for warrants in cashless exercise.................................... $ 1,296,000
------------
------------
Property and equipment acquired by assuming debt.................................. $ 1,000,000
------------
------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Anchor Gaming ("Anchor" or the "Company") is a diversified gaming company
that seeks to capitalize on its experience as an operator and developer of
gaming machines and casinos by developing gaming oriented businesses. Anchor
develops and distributes unique proprietary games, currently operates two
casinos in Colorado, and operates one of the largest gaming machine routes in
Nevada.
Anchor Gaming was formed July 28, 1993 and completed its initial public
offering ("IPO") in February 1994. Simultaneous with the closing of the IPO,
Anchor became the holding company of Anchor Coin, C.G. Investments, Inc.
("CGI"), Colorado Grande Enterprises, Inc. ("Colorado Grande") and D D Stud,
Inc. ("DD Stud") (collectively the "Subsidiaries"), which had been operated
under different ownership structures controlled primarily by Stanley E. Fulton,
the Chairman of the Board, Chief Executive Officer and principal stockholder of
Anchor. Also at the time of the IPO, the Company acquired all of the beneficial
ownership of Global Gaming Products, L.L.C. and certain related assets from
Global Distributors, Inc. (the "Acquisition"), which were primarily involved in
the distribution of the proprietary game Silver Strike. The accounts of the
Subsidiaries are consolidated in the accompanying financial statements. All
significant intercompany accounts and transactions have been eliminated. The
financial position and operating results of Colorado Grande Enterprises, Inc.
are included in the consolidated financial statements as an 80% consolidated
subsidiary.
On April 23, 1996, Anchor completed a secondary offering of 2.3 million
shares of common stock at a price of $37 per share, with 1.55 million of these
shares being sold by the Company (the "Secondary Offering") and the remaining
750,000 shares were sold by selling stockholders. Net proceeds to the Company
from the Secondary Offering were $53.9 million.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments purchased with
maturities of three months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, trade
receivables, and trade payables approximates fair value because of the short
maturities of these instruments. The Company estimates fair value on its
long-term obligations based on quoted market prices or on the current rates
offered to the Company for debt of the same remaining maturities. The estimated
fair values of the obligations closely approximated the carrying values at June
30, 1996 and 1997.
INVESTMENTS IN DEBT SECURITIES
The Company's investment securities, along with certain cash and cash
equivalents that are not deemed securities under Statement No. 115 ("SFAS 115"),
are carried on the consolidated balance sheets in the cash and cash equivalents
category. Management determines the appropriate classification of its investment
securities at the time of purchase as either held-to-maturity, trading, or
available for sale and re-evaluates such determination at each balance sheet
date. The Company has classified its investment securities as of June 30, 1996
and 1997 as held-to-maturity. Held-to-maturity securities are required to be
F-7
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
carried at amortized cost. The securities classified as held-to-maturity consist
of the following amortized costs at June 30:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Debt securities issued by the U.S. Treasury and other U.S.
government agencies.......................................... $ 34,915,000 $ 52,734,000
Repurchase agreements.......................................... 30,013,000 --
------------- -------------
$ 64,928,000 $ 52,734,000
------------- -------------
------------- -------------
</TABLE>
All of the Company's investment securities mature in three months or less
from the date of purchase. The estimated fair value of the Company's portfolio
of investment securities at June 30, 1996 and 1997 closely approximated
amortized cost because of the short term nature of the portfolio.
ACCOUNTS RECEIVABLE
Accounts receivable result from the sale of products and services to gaming
properties primarily in the United States. The Company performs credit
evaluations of its customers and does not require collateral. Management reviews
customer balances for potential credit losses and maintains an allowance for
amounts deemed uncollectible. The amounts reserved at June 30, 1996 and 1997
were $278,821 and $665,605, respectively.
INVENTORY
Inventory consists of silver and silver tokens, parts for gaming machines,
and food and beverage items. Silver inventory of $1,092,671 and $594,615 at June
30, 1996 and 1997, respectively, is classified as raw material. The remainder of
inventory is classified as finished goods. All inventories are stated at the
lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Ordinary maintenance and
repairs are charged to expense as incurred. Costs that materially increase the
life or value of existing assets are capitalized. Assets that have been placed
in service are depreciated over their estimated useful lives or amortized over
lease terms using either straight-line or accelerated methods. Estimated useful
lives for furniture and equipment are 5 to 7 years, for leasehold improvements
are 4 1/2 years to 31 1/2 years and for buildings and improvements are 30 years.
INTANGIBLE ASSETS
Intangible assets include goodwill associated with the Acquisition, which is
amortized on a straight-line basis over 10 years. Intangible assets also include
amounts paid to acquire leases for route locations and casino property, amounts
to acquire route participation agreements, costs of patents issued, and
organization costs. These amounts are amortized on a straight-line basis over
the lives of the leases or agreements ranging from 2 to 15 years.
F-8
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUITY INVESTMENTS
Equity investments in joint ventures and other entities that are 20% to 50%
owned are included in deposits and other assets and are accounted for using the
equity method. Income from the joint ventures is included in proprietary games
revenue on the income statements. During fiscal year 1997, the Company made $3.1
million in advances to a 50% owned Joint Venture.
REVENUE RECOGNITION
In accordance with industry practice, the Company recognized gaming revenues
as the net win from gaming operations, which is the difference between amounts
wagered by customers and payments to customers. Proprietary games revenue is
derived from royalty, revenue participation, or other similar short-term
recurring revenue arrangements.
Revenues exclude the retail value of complimentary food and beverage
furnished gratuitously to customers. The estimated departmental costs of
providing such goods and services as included in casino expense are $822,467,
$1,162,495, and $1,365,897 for the fiscal years ended June 30, 1995, 1996, and
1997, respectively.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred and are included in
selling, general, and administrative costs.
EARNINGS PER SHARE
Earnings per share on the income statement is computed by dividing net
income by the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares include the effect of shares issuable upon
the exercise of warrants and stock options. Fully diluted earnings per share
amounts are substantially the same as primary per share amounts for the periods
presented.
ESTIMATES AND ASSUMPTIONS
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. Significant estimates in the financial statements include the
estimated depreciable lives of property and equipment and certain estimated
liabilities and valuation reserves. Actual results could differ from those
estimates.
RECENTLY ADOPTED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121 is effective for
fiscal years beginning after December 15, 1995. Adoption of SFAS 121 in the
current year did not have a material impact on the consolidated financial
statements of the Company.
F-9
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In October 1995, the FASB issued Statement No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"), which establishes financial accounting
and reporting standards for stock-based employee compensation plans and for
transactions in which an entity issues its equity instruments to acquire goods
or services from nonemployees. The Company continues to account for stock based
compensation arrangements in accordance with Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees", and therefore the adoption of SFAS
123 had no effect on the financial position or results of operations of the
Company. The Company has included additional disclosures about stock-based
employee compensation plans as required by SFAS 123 (see Note 8).
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the FASB issued Statement No. 128, "Earnings per Share."
This statement establishes standards for computing and presenting earnings per
share and is effective for financial statements issued for periods ending after
December 15, 1997. Earlier application of this statement is not permitted and
upon adoption requires restatement (as applicable) of all prior-period earnings
per share data presented. Management believes that the implementation of this
standard will not have a significant impact on earnings per share.
In February 1997, the FASB issued Statement No. 129, "Disclosure of
Information about Capital Structure." This statement establishes standards for
disclosing information about an entity's capital structure. Management intends
to comply with the disclosure requirements of this statement which are effective
for periods ending after December 15, 1997.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). This statement requires companies to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS 130 is effective for financial statements issued for
fiscal years beginning after December 15, 1997. Management does not believe this
new standard will have a material impact on the Company's financial statements.
In June 1997, the FASB issued Statement No. 131 "Disclosure About Segments
of an Enterprise and Related Information" ("SFAS 131"). This statement
establishes additional standards for segment reporting in the financial
statements and is effective for fiscal years beginning after December 15, 1997.
The Company believes the segment information required to be disclosed under SFAS
131 will be more comprehensive than previously provided, including expanded
disclosure of income statement and balance sheet items for each of its
reportable segments under SFAS 131. However, the Company has not yet completed
its analysis of which operating segments it will report on.
3. NOTES RECEIVABLE
Notes receivable include notes due from an unaffiliated gaming company and
its stockholders for business development, which accrue interest at the prime
rate (8.5% at June 30, 1997) and notes due from various slot route location
owners with interest rates ranging from 8% to 12% to be paid over periods
ranging from three months to 5 years. At June 30, 1996, notes receivable also
include a note due from an unaffiliated Nevada gaming company with route
operations in Louisiana with interest accruing at the
F-10
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. NOTES RECEIVABLE (CONTINUED)
prime rate plus a percentage of net cash flow (as defined in the loan
documents). This note was paid in full during the year ended June 30, 1997.
Notes receivable consist of the following at June 30:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Loans to unaffiliated gaming companies............................ $ 1,418,338 $ 610,905
Location loans for operating rights............................... 662,918 700,435
Loans to employees................................................ -- 1,200,000
Loans to related parties.......................................... 27,142 --
------------ ------------
2,108,398 2,511,340
Less allowance for doubtful accounts.............................. 915,369 922,562
------------ ------------
1,193,029 1,588,778
------------ ------------
Less current portion:.............................................
Loans to unaffiliated gaming companies.......................... 829,315 --
Location loans for operating rights............................. 24,716 45,619
Loans to related parties........................................ 27,142 --
------------ ------------
Notes receivable, current......................................... 881,173 45,619
------------ ------------
Long-term notes receivable, net................................... $ 311,856 $ 1,543,159
------------ ------------
------------ ------------
</TABLE>
Loans to related parties at June 30, 1996 consist of advances made by the
Company to a slot route operation owned by the principal stockholder of the
Company, which were paid in full on July 11, 1996.
Loans to employees at June 30, 1997 consist of a $1.2 million line of credit
arrangement with an entity controlled by an employee of the Company. Loans
outstanding under the line of credit bear interest at prime rate plus 1%.
Payment of all principal and accrued interest is due on August 13, 1998 if
certain licensing events have not occurred as of that date. If the licensing
events have occurred, payment terms may be extended.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30:
<TABLE>
<CAPTION>
1996 1997
------------- --------------
<S> <C> <C>
Land and improvements......................................... $ 14,725,645 $ 15,316,178
Buildings and improvements.................................... 11,326,850 13,023,440
Gaming equipment.............................................. 30,276,982 61,641,351
Furniture, fixtures and equipment............................. 3,953,544 5,144,212
Leasehold improvements........................................ 3,657,726 6,143,415
Construction in progress...................................... 3,362,235 1,496,089
------------- --------------
67,302,982 102,764,685
Less accumulated depreciation................................. 9,526,745 17,731,249
------------- --------------
Total..................................................... $ 57,776,237 $ 85,033,436
------------- --------------
------------- --------------
</TABLE>
F-11
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT (CONTINUED)
On November 11, 1996, the Company announced that it was re-evaluating the
scope and nature of its proposed addition of a new casino across the street from
the Colorado Central Station Casino. During the fourth quarter of the year ended
June 30, 1997, the Company determined that it was necessary to recognize a
write-down of costs associated with the new casino in the amount of $2,116,968.
The costs were specifically related to architectural fees, building design
costs, and deferred rent that were determined to have no future benefit.
Although the Company has proceeded with this asset write-down, it has not
abandoned the concept of an expansion and will continue to re-evaluate its
Colorado expansion options.
5. INTANGIBLE ASSETS
Intangible assets consist of the following at June 30:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Lease acquisition costs........................................... $ 2,085,857 $ 2,312,951
Goodwill.......................................................... 1,134,865 1,134,865
Patents........................................................... 98,595 98,595
Organization costs and other...................................... 221,310 221,310
------------ ------------
3,540,627 3,767,721
Less accumulated amortization..................................... 1,485,917 1,639,415
------------ ------------
Total......................................................... $ 2,054,710 $ 2,128,306
------------ ------------
------------ ------------
</TABLE>
6. NOTES PAYABLE
Notes payable consist of the following at June 30:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
PRINCIPAL STOCKHOLDER
Unsecured note payable to principal stockholder, interest at 8%,
due July 1, 1998(a)........................................... $ 2,300,000 $ 2,300,000
Unsecured note payable to principal stockholder, interest at 8%,
due July 1, 1998.............................................. 500,000 500,000
------------ ------------
Long-term notes payable, principal stockholder.................. $ 2,800,000 $ 2,800,000
------------ ------------
------------ ------------
OTHER
Note payable secured by land, interest at 6%, due in 120 equal
monthly principal installments plus interest, final payment
due December 2005. Paid in full during the year ended June 30,
1997.......................................................... $ 950,000 $ --
Less current portion............................................ 100,000 --
------------ ------------
Long-term portion............................................... $ 850,000 $ --
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(a) At June 30, 1997, the stockholder amended the terms of the notes to be due
July 1, 1998.
F-12
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE (CONTINUED)
Notes payable to the principal stockholder and related party resulted in
interest expense of $623,060, $289,373, and $223,693 for the years ended June
30, 1995, 1996, and 1997, respectively, and accrued interest payable of $18,400
at June 30, 1996 and 1997.
7. OTHER DEBT
In April 1997, the Company entered into a $10 million unsecured revolving
bank line of credit (the "Bank Revolver") expiring November 30, 1998. The Bank
Revolver bears interest at the prime rate, or LIBOR plus 2%, at the Company's
option. The Company has agreed to maintain certain financial and non-financial
covenants customary with lending arrangements of this type. Financial covenants
include maintenance of minimum cash and cash equivalent balances, tangible net
worth, annual EBITDA, and maximum funded debt to EBITDA ratio. The covenants
also restrict payment of cash dividends. The Company has remained in compliance
with the covenants throughout the term of the credit facility. As of June 30,
1997, the Company had not borrowed under the Bank Revolver.
8. OPTIONS AND WARRANTS
As of June 30, 1997, 1,085,000 shares of common stock were reserved for
issuance upon exercise of employee and director stock options under an employee
stock option plan. Employee and director options to purchase 930,500 shares at
the fair market values at the grant dates have been granted as of June 30, 1997.
As of June 30, 1997, options to purchase 402,475 shares had been exercised. Of
the 930,500 options, 100,000 vest in equal quarterly increments over two years,
93,000 vest in equal annual increments over five years, 50,000 vest in a single
installment six months after issuance, 20,000 vest in decreasing annual
increments over five years, 250,000 vest in varying increments and periods over
five years, 8,000 vest at the end of three years and the remainder vest in equal
quarterly increments over five years.
An additional 40,000 shares are reserved for issuance upon exercise of
vested options at the IPO price that were granted to a relative of certain
minority stockholders (none of which were exercised at June 30, 1997), and
250,000 shares are reserved for issuance upon exercise of vested warrants
granted to the managing underwriters of the IPO (and their designees)
exercisable at 120% of the IPO price, all of which were exercised at June 30,
1997.
Options to purchase an additional 600,000 shares were granted at the fair
market value at the grant date to certain employees outside of the employee
stock option plan. These options vest in varying increments over periods from
nine months to eight years.
F-13
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. OPTIONS AND WARRANTS (CONTINUED)
Summarized information for all options is as follows for the years ended
June 30:
<TABLE>
<CAPTION>
1995 1996 1997
----------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of the
year............................. 954,500 $ 12.80 820,300 $ 12.95 670,700 $ 17.79
Granted......................... 8,000 16.81 288,000 25.07 600,000 31.88
Exercised....................... (128,450) 12.18 (418,600) 13.57 (105,425) 12.54
Canceled........................ (13,750) 12.00 (19,000) 12.00 (32,250) 44.44
---------- ---------- ----------
Outstanding, end of the year...... 820,300 12.95 670,700 17.79 1,133,025 24.98
---------- ---------- ----------
---------- ---------- ----------
Exercisable at end of the year.... 453,950 13.44 148,050 12.31 245,475 16.11
---------- ---------- ----------
---------- ---------- ----------
Options available for grant....... 26,250 107,250 189,500
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The following table summarizes information about the options outstanding at
June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- --------------------------
NUMBER WEIGHTED NUMBER WEIGHTED
OUTSTANDING WEIGHTED AVERAGE AVERAGE EXERCISABLE AVERAGE
AT JUNE 30, REMAINING EXERCISE AT JUNE 30, EXERCISE
RANGE OF EXERCISE PRICES 1997 CONTRACTUAL LIFE PRICE 1997 PRICE
- ----------------------------------- ------------- ------------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$12.00 - $13.50 268,125 6.6 $ 12.13 142,375 $ 12.14
14.75 - 21.75 256,900 8.0 21.61 103,100 21.60
31.88 - 46.88 608,000 9.7 32.07 -- --
------------- -------------
1,133,025 8.6 24.98 245,475 16.11
------------- -------------
------------- -------------
</TABLE>
The Company is authorized to issue 1,000,000 shares of preferred stock, $.01
par value per share (the "Preferred Stock"), in one or more series, and to
designate the rights, preferences, limitations, and restrictions of and upon
shares of each series, including voting, redemption, and conversion rights. The
board of directors of the Company also may designate dividend rights and
preferences in liquidation. The board of directors of Anchor has authorized the
Company to designate a series of Series A Junior Participating Preferred Stock
in connection with the Rights Plan discussed in Note 12. In connection with the
authorization of the Rights Plan, the board of directors of the Company has
authorized the designation of 50,000 shares of Preferred Stock as Series A
Junior Participating Preferred Stock.
The Company has adopted the disclosures-only provision of Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). The Company applies APB
Opinion No. 25 and related interpretations in accounting for its stock options.
Under APB 25, no compensation cost has been recognized in the financial
statements for the Stock Option Plan or other stock options granted. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. Had compensation cost for the stock option
grants been determined based on the fair value at the date of grant for awards
consistent with the provision of SFAS 123, the Company's net income per common
and
F-14
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. OPTIONS AND WARRANTS (CONTINUED)
common equivalent share would have been decreased to the pro forma amounts
indicated below for the years ended June 30:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Net income--as reported........................................ $ 22,335,044 $ 35,676,428
Net income--pro forma.......................................... 21,758,657 34,940,303
Earnings per common and common
equivalent shares--as reported............................... $ 1.84 $ 2.61
Earnings per common and common
equivalent shares--pro forma................................. 1.79 2.55
</TABLE>
The fair value of each option granted in fiscal year 1996 and 1997 was
estimated using the following assumptions for the Black-Scholes option pricing
model: (i) no dividends; (ii) expected volatility for both years of 50%; (iii)
risk free interest rates averaging 6% for both years; and (iv) the expected
average life of 3.2 years for 1996 and 3.6 years for 1997. The weighted average
fair value of the options granted in 1996 and 1997 were $9.03 and $9.82,
respectively. Because the SFAS 123 method of accounting has not been applied to
options granted prior to July 1, 1995, the resulting pro forma net income may
not be representative of that to be expected in future years.
9. OTHER RELATED PARTY TRANSACTIONS
The principal stockholder of the Company owned 100% of the common stock of
an Anchor Gaming slot route location. On January 31, 1996, the principal
stockholder sold the location to an unaffiliated third party. For providing the
gaming machines and slot route services, the Company received a percentage of
the net win of the location similar to other route locations. The Company held a
note receivable from the slot route operation in the amount of $284,704 at
January 31, 1996 of which $257,562 was assumed by the new owner. The remaining
balance of the loan due from the principal stockholder at June 30, 1996 of
$27,142 was paid in full on July 11, 1996. The slot route operation, under the
ownership of the principal stockholder, accounted for $295,502 and $180,822 of
gaming revenue during the years ended June 30, 1995 and 1996, respectively and
$279,059 and $145,684 of route costs during the years ended June 30, 1995 and
1996, respectively.
In August 1996, the Company made certain payments to an entity controlled by
an employee of the Company. These funds were used to repay a debt of $500,000
owed by the employee and his affiliate to the principal stockholder of the
Company.
F-15
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
The provision (benefit) for income taxes for the years ended June 30, 1995,
1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------- -------------
<S> <C> <C> <C>
Currently payable per tax return:
Federal........................................ $ 8,976,859 $ 11,750,029 $ 20,066,284
State.......................................... 474,051 846,278 1,369,887
------------ ------------- -------------
9,450,910 12,596,307 21,436,171
------------ ------------- -------------
Deferred:
Federal........................................ (381,402) 579,569 (399,219)
State.......................................... 416,943 11,683 (36,250)
------------ ------------- -------------
35,541 591,252 (435,469)
------------ ------------- -------------
Total........................................ $ 9,486,451 $ 13,187,559 $ 21,000,702
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The historical provision for income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory federal income tax rate
to pre-tax income from continuing operations as a result of the following
differences:
<TABLE>
<CAPTION>
1995 1996 1997
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory U.S. tax rate...................... $ 8,913,449 35.0% $ 12,432,911 35.0% $ 19,836,995 35.0%
Increase (decrease) in tax resulting from:
State income taxes, net of federal tax
effect................................... 579,147 2.3 557,674 1.6 866,864 1.5
Other, net................................... (6,145) (.1) 196.974 .5 296,843 .6
------------- ----- ------------- ----- ------------- -----
Actual provision for income taxes............ $ 9,486,451 37.2% $ 13,187,559 37.1% $ 21,000,702 37.1%
------------- ----- ------------- ----- ------------- -----
------------- ----- ------------- ----- ------------- -----
</TABLE>
Statement No. 109 "Accounting for Income Taxes" requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or income tax
returns. Deferred income taxes included in other current assets, deposits and
other, and other long-term liabilities on the consolidated balance sheets
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting
F-16
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
purposes and the amounts used for income tax purposes. The tax items comprising
the Company's net deferred tax asset as of June 30, 1996 and 1997 are as
follows:
<TABLE>
<CAPTION>
1996 1997
------------ -------------
<S> <C> <C>
Deferred tax assets:
Receivable reserve............................................. $ 478,000 $ 617,000
Pre-opening expenditures....................................... 140,000 86,000
Reserves not currently deductible.............................. 229,000 417,000
------------ -------------
847,000 1,120,000
Deferred tax liabilities:
Difference between book and tax basis of property.............. (1,038,000) (876,000)
------------ -------------
Net deferred tax asset (liability)............................... $ (191,000) $ 244,000
------------ -------------
------------ -------------
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
NON-CANCELABLE OPERATING LEASES:
The Company leases parking lot space, office space, casino space, and slot
route locations under non-cancelable operating leases. The original terms of the
leases range from 3 to 15 years with various renewal options from 1 to 15 years.
The casino space lease has contingent rentals based on gaming revenues of
the casino occupying the space. The lease provides for a monthly payment of the
greater of a base amount of $12,000 or 5% of adjusted gross gaming revenue, with
a payment ceiling of $400,000 per year. Contingent rentals paid above base
amounts were $100,898, $184,312, and $254,472 for the years ended June 30, 1995,
1996, and 1997, respectively.
Future minimum rentals under non-cancelable operating leases at June 30,
1997 are:
<TABLE>
<S> <C>
Year ending June 30,
1998........................................................ $10,656,000
1999........................................................ 10,571,000
2000........................................................ 7,990,000
2001........................................................ 7,875,000
2002........................................................ 7,864,000
Thereafter.................................................. 57,230,000
-----------
$102,186,000
-----------
-----------
</TABLE>
Operating lease rental expense was $7,706,000, $9,539,000, and $10,940,000
for the fiscal years ended June 30, 1995, 1996, and 1997, respectively.
Included in deposits at June 30, 1996 and 1997 is a space lease deposit of
$3,300,000, which is held by the lessor of several slot route locations pursuant
to an agreement that provides that the deposit, or any portion thereof, may, at
the option of the Company, be applied against rents owing during the last two
years of the lease agreement. Also included in deposits are payments totaling
$10,750,000 to this lessor to extend the lease term for these locations through
the year 2010. The lease extension payments are
F-17
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
amortized to rent expense on a straight-line basis over the remaining term of
the lease. The Company's slot route operations at locations leased from this
lessor accounted for more than 10% of the Company's total revenues for the years
ended June 30, 1995, 1996, and 1997.
GAMING REGULATIONS
The Company's route operations are subject to the licensing and regulatory
requirements of the Nevada State Gaming Control Board and the Nevada Gaming
Commission. The Company's casino operations are subject to the licensing and
regulatory requirements of the Colorado Limited Gaming Control Commission. The
Company's proprietary games operations are subject to the licensing and
regulatory requirements of multiple jurisdictions throughout the United States
and Canada including the Nevada and Colorado requirements. The Company's gaming
licenses are subject to certain conditions and periodic renewal. Management
believes that the conditions will continue to be satisfied and that subsequent
license renewals will be granted.
ENVIRONMENTAL MATTERS
The Colorado Central Station Casino is located in an area that has been
designated by the Environmental Protection Agency ("EPA") as a superfund site on
the National Priorities List, known as the Central City-Clear Creek Superfund
Site (the "Site") as a result of contamination from historic mining activity in
the area. The EPA is entitled to proceed against owners and operators of
properties located within the Site for remediation and response costs associated
with their properties and with the entire Site. The Colorado Central Station
Casino is located within the drainage basin of North Clear Creek and is
therefore subjected to potentially contaminated surface and ground water from
upstream mining-related sources. Soil and ground water samples on the Site
indicate that several contaminants exist in concentrations exceeding drinking
water standards. Records relating to historical uses of the Site are uncertain
as to whether mining actually occurred below the Company's property. Records do
indicate that an ore loading dock for a railroad depot was once located on an
adjacent property, and railroad tracks were present on the Company's property.
Management is not aware of any environmental issues associated with these
activities.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with seven executives and
top management personnel. The agreements vary in starting date and are for
periods ranging from two to five years. Agreements with aggregate annual
salaries of $1,435,000 are terminable at the Company's option with 90 days to
one year severance pay.
LITIGATION
The Company is party to several routine lawsuits arising from normal
operations. Management does not believe that the outcome of such litigation in
the aggregate will have a material adverse effect on the consolidated financial
statements of the Company.
PURCHASE COMMITMENTS
At June 30, 1997, the Company had entered into various purchase agreements
to purchase gaming equipment for approximately $5,594,000.
F-18
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENT
In August 1997, the board of directors of Anchor authorized the Company to
enter into a Stockholder Rights Plan (the "Rights Plan") providing that one
right (a "Right") will be attached to each share of Common Stock as of a record
date to be determined by the board of directors of Anchor (the "Record Date").
Each Right will entitle the registered holder to purchase from the Company a
unit (a "Unit") consisting of one one-thousandth of a share of Series A Junior
Participating Preferred Stock, par value $20.00 per share, to be authorized by
the Company at a Purchase Price of $400.00 per Unit, subject to adjustment. The
Rights convert in certain circumstances into a right to purchase Common Stock or
securities of a successor entity. The description and terms of the Rights are to
be set forth in the Rights Agreement, between the Company and a bank or
financial institution to be selected by the Company as Rights Agent.
F-19
<PAGE>
[Inside back cover]
<TABLE>
<S> <C> <C>
[Winners of a progressive
[Interior of the Colorado jackpot at a Smiths Food King
Central Station Casino.] slot route location.]
[Exterior aerial view of
the Colorado Central
Station Casino.]
</TABLE>
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY
OTHER THAN THE COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE UNDER THIS PROSPECTUS WILL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS
OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 1
Risk Factors................................... 7
Price Range of Common Stock.................... 13
Dividend Policy................................ 13
Selected Financial and Operating Information... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 16
Business....................................... 22
Regulation..................................... 32
Management..................................... 39
Principal and Selling Stockholders............. 42
Certain Transactions........................... 43
Description of Capital Stock................... 44
Underwriting................................... 50
Legal Matters.................................. 52
Experts........................................ 52
Available Information.......................... 53
Incorporation of Certain Information by
Reference..................................... 53
Index to Consolidated Financial Statements..... F-1
</TABLE>
1,800,000 SHARES
[LOGO]
ANCHOR GAMING
COMMON STOCK
--------------
PROSPECTUS
--------------
BTALEX. BROWN
MORGAN STANLEY DEAN WITTER
RAYMOND JAMES & ASSOCIATES, INC.
, 1997
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration Fee.................................................. $ 49,084
NASD Filing Fee................................................... 30,500
Nasdaq Fee........................................................ *
Printing.......................................................... 125,000
Accounting fees and expenses...................................... 55,000
Legal fees and expenses........................................... 110,000
Miscellaneous expenses............................................ 10,416
---------
Total......................................................... $ 380,000
---------
---------
</TABLE>
- ------------------------
*Estimated
All of the above expenses will be paid by the Selling Stockholders.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of the Nevada General Corporation Law permits a corporation
to indemnify any person who was, or is, or is threatened to be made a party in a
completed, pending, or threatened proceeding, whether civil, criminal,
administrative, or investigative (except an action by or in the right of the
corporation), by reason of being or having been an officer, director, employee,
or agent of the corporation or serving in certain capacities at the request of
the corporation. Indemnification may include attorneys fees, judgments, fines,
and amounts paid in settlement. The person to be indemnified must have acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the corporation and, with respect to any criminal
action, such person must have had no reasonable cause to believe his or her
conduct was unlawful.
With respect to actions by or in the right of the corporation,
indemnification may not be made for any claim, issue, or matter as to which such
a person has been finally adjudged by a court of competent jurisdiction to be
liable to the corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which the action was brought or
other court of competent jurisdiction determines upon application that in view
of all circumstances the person is fairly and reasonably entitled to indemnity
for such expenses as the court deems proper.
Unless indemnification is ordered by a court, the determination to pay
indemnification must be made by the stockholders, by a majority vote of a quorum
of the board of directors who were not parties to the action, suit or
proceeding, or in certain circumstances by independent legal counsel in a
written opinion. Section 78.751 permits the Articles of Incorporation or Bylaws
to provide for payment to an officer or director of the expenses of defending an
action as incurred upon receipt of an undertaking to repay the amount if it is
ultimately determined by a court of competent jurisdiction that the person is
not entitled to indemnification.
Section 78.751 also provides that to the extent a director, officer,
employee, or agent has been successful on the merits or otherwise in the defense
of any such action, he or she must be indemnified by the corporation against
expenses, including attorneys' fees, actually and reasonably incurred in
connection with the defense.
The Company's Articles of Incorporation and Bylaws contain provisions
requiring it to indemnify its executive officers and directors to the full
extent permitted by the Nevada General Corporation Law.
The Company has entered into indemnity agreements (the "Indemnification
Agreements") with each of its directors and executive officers. Each such
Indemnification Agreement provides for indemnification
II-1
<PAGE>
of directors and executive officers of the Company to the fullest extent
permitted by Nevada Law and additionally permits advancing attorneys' fees and
all other costs, expenses, obligations, fines and losses, paid or incurred by a
director or executive officer generally in connection with the investigation,
defense or other participation in any threatened, pending or completed action,
suit or proceeding or any inquiry or investigation thereof, whether conducted by
or on behalf of the Company or any other party. If it is later determined that
the director or executive officer is or was not entitled to indemnification
under applicable law, the Company is entitled to reimbursement by the director
or executive officer.
The Indemnification Agreements further provide that in the event of a change
in control of Anchor, all matters thereafter arising concerning the rights of
directors and executive officers to indemnity payments and expense advances, all
determinations regarding excludable claims will be made by a special independent
legal counsel engaged by the Company.
To the extent that the Board of Directors or the stockholders of the Company
may in the future wish to limit or repeal the ability of Anchor to indemnify
directors and executive officers, such repeal or limitation may not be effective
as to directors and executive officers who are currently parties to the
Indemnification Agreements, because their rights to full protection are
contractually assured by the Indemnification Agreements. It is anticipated that
similar contracts may be entered into, from time to time, with future directors
and executive officers of Anchor. In addition, the Company's Articles of
Incorporation and Bylaws provide for indemnification of officers and directors
to the fullest extent permitted by the Nevada Law.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement
2.1 -- Reorganization Agreement among Anchor Gaming, Anchor Coin, D D Stud, Inc., C.G. Investments,
Inc. Colorado Grande Enterprises, Inc., New AC, New DD, New CG, and certain stockholders of
such corporations, filed as Exhibit 2.1 to the Company's Registration Statement on Form S-1
(Registration No. 33-71870) and incorporated herein by reference.
4.1** -- Form of Rights Agreement
4.2** -- Form of Certificate of Designation, Preferences, and Rights of Series A Junior Participating
Preferred Stock
5.1** -- Opinion of Hughes & Luce, L.L.P. regarding legality of securities being registered
23.1** -- Consent of Hughes & Luce, L.L.P. (included in Exhibit 5.1)
23.2* -- Consent of Deloitte & Touche LLP
23.3* -- Consent of Daniel P. Burke
24.1 -- Powers of Attorney (included in Part II of the Registration Statement)
</TABLE>
- ------------------------
* Filed herewith.
**To be filed by amendment.
(b) Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
For purposes of determining any liability under the Securities Act of 1933,
each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
For the purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Pre-Effective
Amendment No. 1 to this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on September 16, 1997.
ANCHOR GAMING
By: /s/ GEOFFREY A. SAGE
-----------------------------------
Geoffrey A. Sage
Corporate Controller
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or amendment thereto has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- -------------------------------------------- ------------------------------------- ----------------------
* Director, Chairman of the Board,
----------------------------------- Chief Executive Officer, and September 16, 1997
Stanley E. Fulton acting Chief Financial Officer
*
----------------------------------- Director September 16, 1997
Elizabeth F. Jones
*
----------------------------------- Director September 16, 1997
Stuart D. Beath
*
----------------------------------- Director September 16, 1997
Garret A. Scholz
*
----------------------------------- Director September 16, 1997
Michael B. Fulton
*
----------------------------------- Director September 16, 1997
Michael D. Rumbolz
/s/ GEOFFREY A. SAGE
----------------------------------- Corporate Controller September 16, 1997
Geoffrey A. Sage
/s/ GLEN J. HETTINGER
----------------------------------- Director September 16, 1997
Glen J. Hettinger
*By: /s/ GEOFFREY A. SAGE
------------------------------
Geoffrey A. Sage
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COST AND OTHER BALANCE AT
DESCRIPTION YEAR EXPENSES ADJUSTMENTS END OF YEAR
- ----------------------------------------------------------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Year ended June 30, 1995:
Allowance for doubtful accounts (deducted from accounts
receivable).............................................. $ 28,720 $ 52,101 $ -- $ 80,821
Allowance for doubtful accounts (deducted from notes
receivable).............................................. 352,078 495,000 (4,931)(2) 842,147
------------ ---------- ----------- ------------
$ 380,798 $ 547,101 $ (4,931) $ 922,968
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------
Year ended June 30, 1996:
Allowance for doubtful accounts (deducted from accounts
receivable).............................................. $ 80,821 $ 198,000 $ -- $ 278,821
Allowance for doubtful accounts (deducted from notes
receivable).............................................. 842,147 99,022(3) (20,000)(1) 915,369
(5,800)(2)
------------ ---------- ----------- ------------
$ 922,968 $ 297,022 $ (25,800) $ 1,194,190
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------
Year ended June 30, 1997:
Allowance for doubtful accounts (deducted from accounts
receivable).............................................. $ 278,821 $ 437,784 $ (51,000)(2) $ 665,605
Allowance for doubtful accounts (deducted from notes
receivable).............................................. 915,369 21,883(3) (14,690)(2) 922,562
------------ ---------- ----------- ------------
$ 1,194,190 $ 459,667 $ (65,690) $ 1,588,167
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------
</TABLE>
- ------------------------
(1) Amounts deemed to be uncollectible
(2) Amounts recovered
(3) Primarily charged to development costs included in selling, general and
administrative expenses
<PAGE>
ANCHOR GAMING
1,800,000 Shares
Common Stock
(par value $.01 per share)
UNDERWRITING AGREEMENT
October , 1997
BT Alex. Brown Incorporated
Morgan Stanley & Co. Incorporated
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Ladies and Gentlemen:
Anchor Gaming (the "Company"), a Nevada corporation, and the
persons named in Schedule I annexed hereto (each a "Selling Stockholder"),
hereby confirm their agreement with you, as set forth below.
1. THE SECURITIES. Subject to the terms and conditions herein
contained, the Selling Stockholders, severally, propose to sell to the
underwriters named in Schedule II hereto (the "Underwriters"), for whom you
are acting as representatives (the "Representatives"), an aggregate of
1,800,000 shares of common stock, par value $.01 per share, of the Company
(the "Common Stock"), in the respective amounts set forth opposite their
respective names in Schedule I (the "Firm Securities"). In addition, solely
for the purpose of covering over-allotments, Stanley E. Fulton proposes to
grant to the Underwriters the option, exercisable by the Representatives of
the Underwriters, to purchase from such Selling Stockholder up to an
additional 270,000 shares of Common Stock (the "Additional Securities") as
set forth below. The Firm Securities and the Additional Securities that may
be sold to the Underwriters are hereinafter collectively referred to as the
"Securities."
<PAGE>
-2-
The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-3 (SEC File No.
333-4755) and a related preliminary prospectus for the registration of the
Securities under the Securities Act of 1933, as amended (the "Act") and has
filed such amendments thereto, if any, as may have been required prior to the
date hereof.
As used in this Agreement, the term "Registration Statement" means
such registration statement, as amended at the time when it was or is
declared effective, including all financial statements and schedules and
exhibits thereto and including any information omitted therefrom pursuant to
Rule 430A under the Rules and Regulations ("Rule 430A"), if applicable, and
included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus relating to the Securities as filed with
such registration statement or any amendment thereto (including the
prospectus, if any, included in such registration statement or any amendment
thereto at the time it was or is declared effective if declared effective
prior to the execution and delivery of this Agreement); and the term
"Prospectus" means the prospectus relating to the Securities as first filed
with respect to such registration statement with the Commission pursuant to
Rule 430A and Rule 424(b) under the Rules and Regulations ("Rule 424(b)"), if
required, or, if no prospectus is required to be filed pursuant to Rule 430A
or Rule 424(b), such term means the prospectus included in such registration
statement at the time it became or becomes effective; PROVIDED that if a
revised Prospectus shall be provided to the Underwriters by the Company and
the Selling Stockholders for use in connection with the offering and sale of
the Securities that differs from the prospectus on file at the Commission at
the time such registration statement becomes effective or as first filed
under Rule 430A and Rule 424(b), the term "Prospectus" shall refer to the
revised prospectus from and after the time it is first provided to the
Underwriters for such use. If the Company has filed an abbreviated
registration statement to register additional securities pursuant to Rule
462(b) under the Act (the "Rule 462 Registration Statement") then any
reference herein to "Registration Statement" shall be deemed to include such
Rule 462 Registration Statement. All references in this Agreement to the
Registration Statement, Preliminary Prospectus and Prospectus and to
financial statements and schedules and other information that is
"contained," "included," "set forth," "described in" or "stated" therein (and
all other references of like import) shall be deemed to mean and include all
such financial statements and schedules and other information that is or is
deemed to be incorporated by reference therein; and all ref-
<PAGE>
-3-
erences in this Agreement to amendments or supplements to the Registration
Statement, the Preliminary Prospectus or the Prospectus shall be deemed to
mean and include the filing of any document under the Securities Exchange Act
of 1934, as amended (the "1934 Act"), that is or is deemed to be incorporated
by reference therein.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, each Underwriter that:
(a) The registration statement originally filed with the
Commission with respect to the Securities, including the form of
prospectus, together with all amendments thereto, has been prepared
by the Company in conformity in all material respects with the
requirements of the Act and the rules and regulations (the "Rules and
Regulations") of the Commission thereunder and the Company meets all
the requirements for filing on Form S-3. The Registration Statement
at the time it was or will be declared effective and at the Closing
Date (as hereinafter defined) complies and will comply in all
material respects with the requirements of the Act and the Rules and
Regulations.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus nor instituted any
proceeding for such purpose. When the Registration Statement or any
amendment thereto was or is declared effective and on the Closing
Date (as hereinafter defined), it did not or will not contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus, and any
amendments or supplements thereto on the date first filed with the
Commission pursuant to Rule 424(b) (or if not filed, on the date
first provided to the Underwriters in connection with the offering
and sale of the Securities) and on the Closing Date, (i) complied and
will comply in all material respects with the requirements of the Act
and the Rules and Regulations, and (ii) did not and will not contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading. The foregoing provisions of this
paragraph (b) do not apply to statements or omissions in the
Registration Statement or any amendment thereto or the Prospectus or
any amendment or supplement thereto made in
<PAGE>
-4-
reliance upon and in conformity with written information with respect
to the Underwriters furnished to the Company by BT Alex. Brown
Incorporated specifically for use therein.
(c) The documents incorporated or deemed to be incorporated by
reference in the Prospectus, at the time they were or hereafter are
filed with the Commission, complied and will comply in all material
respects with the requirements of the 1934 Act and the rules and
regulations (the "1934 Act Regulations") of the Commission
thereunder, and when read together with the other information in the
Prospectus, at the time the Registration Statement and any amendments
thereto became or becomes effective and at the Closing Date, did not
and will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(d) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Nevada.
Each of the corporations identified in Exhibit 21 to the Annual
Report on Form 10-K of the Company for the period ended June 30, 1997
(the "Annual Report") and filed with the Commission (collectively,
the "Subsidiaries" and individually, a "Subsidiary") is a corporation
duly incorporated, validly existing and in good standing under the
laws of the state of its incorporation. Except as otherwise set forth
in the Registration Statement, the Company owns, free and clear of
all mortgages, pledges, liens, security interests, conditional sale
agreements and other charges (except for inchoate statutory
obligations that are not yet due and payable and other immaterial
liens), all of the outstanding shares of the capital stock of each
Subsidiary, and all of such shares have been duly and validly
authorized and issued and are fully paid and non-assessable. Except
where the failure to be so qualified or licensed would not have a
material adverse effect on the business, business prospects,
financial condition, results of operation, earnings or properties of
the Company and its Subsidiaries, taken as a whole (a "Material
Adverse Effect") and except as otherwise disclosed under the
Registration Statement, (i) each of the Company and the Subsidiaries
has the power and authority (corporate, governmental, regulatory and
otherwise) and all approvals, orders, licenses, certificates, permits
and other governmental authorizations nec-
<PAGE>
-5-
essary to conduct all of the activities conducted by it, to own or
lease all of the assets owned or leased by it and to conduct its
business as described in the Registration Statement and the
Prospectus and (ii) each is duly licensed or qualified to do business
and in good standing as a foreign corporation in all jurisdictions in
which the nature of the activities conducted by it and/or the
character of the assets owned and leased by it makes such license or
qualification necessary. Except as otherwise set forth in the
Registration Statement and except for the shares of the stock of each
Subsidiary owned by the Company, neither the Company nor any
Subsidiary owns any material shares of stock or any other material
equity securities of any corporation or have any material equity
interest in any firm, partnership, association or other entity.
(e) The authorized, issued and outstanding capital stock of the
Company as of [June 30, 1997 is as set forth in the Annual Report
under the term "Capitalization"] and all such capital stock,
including all Securities to be sold by the Selling Stockholders, has
been validly authorized and issued and is fully paid and
non-assessable. Other than as disclosed in the Prospectus, the
Company does not have outstanding any options to purchase, or any
rights or warrants to subscribe for, or any securities or obligations
convertible into, or any contracts or commitments to issue or sell
shares of capital stock or any warrants or convertible securities.
No holder of securities of the Company or any Subsidiary is entitled
to have such securities registered under the Registration Statement.
(f) The consolidated financial statements of the Company and
the Subsidiaries (including the footnotes thereto) filed with and as
part of the Registration Statement and the Prospectus present fairly
the combined consolidated financial position, results of operation
and cash flows of the Company and the Subsidiaries as of the
respective dates thereof and for the respective periods covered
thereby, all in conformity with generally accepted accounting
principles ("GAAP") applied on a basis consistent with prior periods.
The unaudited consolidated financial statements and the related
notes included in the Registration Statement and the Prospectus
present fairly the respective consolidated financial position,
results of operations and cash flows of the Company and its
consolidated subsidiaries at the dates and for the periods to which
they relate, subject to year end audit adjustments,
<PAGE>
-6-
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis and have been prepared on a
basis substantially consistent with that of the audited financial
statements referred to above. The summary and selected financial and
statistical data included in the Registration Statement and the
Prospectus present fairly the information shown therein and have been
prepared and compiled on a basis consistent with the audited and
unaudited financial statements included therein, except as otherwise
stated therein. Deloitte & Touche, LLP, who has reported on such
financial statements, is an independent accountant with respect to
the Company as required by the Act and the Rules and Regulations.
(g) The statistical and market-related data included in the
Prospectus are based on or derived from sources that the Company and
the Subsidiaries believe to be reliable and accurate.
(h) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus except as
set forth in or contemplated by the Registration Statement and the
Prospectus, (i) neither the Company nor any Subsidiary has incurred
or will have incurred any liabilities or obligations, direct or
contingent, or entered into any transactions not in the ordinary
course of business, except for liabilities, obligations or
transactions that are not material to the Company and its
subsidiaries, taken as a whole; (ii) neither the Company nor any
Subsidiary has paid or declared nor will pay or declare any dividends
or other distributions on its capital stock and (iii) there has not
been and will not have been any change in the capitalization of the
Company (except for the exercise of warrants or options referred to
in the Registration Statement) or any Subsidiary or any material
adverse change in the business, business prospects, financial
condition or results of operations of the Company or any Subsidiary
or in the condition of the Company or any Subsidiary or in the value
of the assets of the Company and the Subsidiaries, taken as a whole,
arising for any reason whatsoever.
(i) There are no actions, suits or proceedings at law or in
equity pending or, to the knowledge of the Company, threatened,
against or affecting the Company or any Subsidiary, any of their
respective assets or any of their respective officers or directors,
before or by any fed-
<PAGE>
-7-
eral, state, county or local commission, regulatory body,
administrative agency or other governmental body, domestic or
foreign, that could reasonably be expected to have a Material Adverse
Effect. Neither the Company nor any Subsidiary is involved in any
labor dispute (nor, to their knowledge, is any such dispute
threatened) that would have a Material Adverse Effect.
(j) Each of the Company and the Subsidiaries has complied with
all laws, regulations and orders applicable to it or its business,
except for any violation of which would not have a Material Adverse
Effect. Each of the Company and the Subsidiaries has in all material
respects performed all of the obligations required to be performed by
it, and is not in default under any indenture, mortgage, deed of
trust, voting trust agreement, loan agreement, letter of credit
agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument to
which it is a party or by which it or any of its property is bound,
except for such failures to perform or defaults as would not have a
Material Adverse Effect, and, to the knowledge of the Company, no
other party under any such agreement or instrument to which the
Company or any Subsidiary is a party is in material default in any
respect thereunder, except for such defaults as would not have a
Material Adverse Effect.
(k) The Company, to the extent required by Section 13(b)(2) of
the 1934 Act, (i) keeps books, records and accounts that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company and its Subsidiaries and
(ii) maintains a system of internal accounting controls sufficient to
provide reasonable assurances that (A) transactions are executed in
accordance with management's general or specific authorization, (B)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles or any other criteria applicable to such statements and to
maintain accountability for assets, (C) access to assets is permitted
only in accordance with management's general or specific
authorization and (D) the recorded value of assets is compared with
the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
<PAGE>
-8-
[(l) Neither the Company nor any Subsidiary is in violation of its
Certificate of Incorporation or By-laws, in each case as amended as of
the date hereof.
(m) The Securities have been duly authorized by the Company and
will be, upon payment therefor in accordance with the terms thereof,
duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights or similar contractual rights to
purchase securities issued by the Company. The Securities conform in
all material respects to all statements with regard thereto contained
in the Registration Statement and the Prospectus.
(n) The Company has all requisite corporate power and authority
to execute and deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby.
This Agreement and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by the
Company. This Agreement has been duly authorized, executed and
delivered by the Company; no consent, approval, authorization or
order of any court or governmental agency or body is required for the
consummation by the Company of the transactions on its part herein
contemplated, except such as may have been obtained under the Act or
otherwise and such as may be required under state securities or "Blue
Sky" laws; the performance of this Agreement and the consummation of
the transactions contemplated hereby will not conflict with or result
in a breach or violation of any of the terms and provisions of or
constitute a default under the Certificate of Incorporation or
By-laws of the Company or any Subsidiary. Except, in each case, for
instances that would not result in a Material Adverse Effect or a
material adverse effect on the ability of the Company to perform its
obligations under this Agreement, the performance of this Agreement
and consummation of the transactions contemplated hereby will not
conflict with or result in a breach or violation of any of the terms
and provisions of or constitute a default under or result in the
creation or imposition of any lien, charge, or encumbrance upon the
assets or properties of the Company or any Subsidiary, pursuant to
any indenture, mortgage, deed of trust, voting trust agreement, loan
agreement, letter of credit agreement, bond, debenture, note
agreement or other evidence of indebtedness, lease, contract or other
agreement or instrument to which the Company or any Subsidiary is a
party or by which the Company or any Subsidiary or any of
<PAGE>
-9-
their respective properties is bound, or under any statute or under any
order, rule or regulation applicable to the Company or any Subsidiary or
their respective businesses or properties or of any court or other
governmental body.
(o) Each of the Company and the Subsidiaries has good and
indefeasible title to all properties and assets owned by it, free and
clear of all liens, charges, encumbrances or restrictions, except
such as are described in or referred to in the Prospectus or are not
material to the business of the Company and its Subsidiaries, taken
as a whole. Each of the Company and the Subsidiaries has valid,
subsisting and enforceable leases for the real properties described
in the Prospectus as leased by it, with such exceptions as are not
material or do not materially interfere with the use made of such
properties by it.
(p) There is no document or contract of a character required to
be described in the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described or filed as required;
and no statement in this Agreement or in any certificate or document
required by this Agreement to be delivered to you is, was when made,
or as of the Closing Date (as hereinafter defined) or any Option
Closing Date (as hereinafter defined) will be, inaccurate, untrue or
incorrect.
(q) Except for instances that would not result in a Material
Adverse Effect, the Company and each of the Subsidiaries possess the
right to use all patents, patent applications, trademarks, trade
names, service marks, service names, copyrights and licenses
necessary for the conduct of the business, as presently conducted, of
the Company and the Subsidiaries and, except as disclosed in the
Registration Statement or Prospectus have not received any notice of
conflict with the asserted rights of others in respect thereof.
(r) The Company is not, and does not intend to conduct its
business in a manner that would cause it to become, an "investment
company" as defined in Section 3(a) of the Investment Company Act of
1940 as amended (the "Investment Company Act").
(s) None of the Company, the Subsidiaries or an agent acting on
their behalf has taken or will take any action that might cause this
Agreement or the sale of the
<PAGE>
-10-
Securities to violate Regulation G, T, U or X of the Board of Governors
of the Federal Reserve System.
(t) Neither the Company nor any of its officers or directors or
affiliates (as defined in the Rules and Regulations) has taken or will
take, directly or indirectly, any action designed to stabilize or
manipulate the price of any security of the Company, or that has
constituted or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company,
to facilitate the sale or resale of any of the Securities in violation of
the Exchange Act or any applicable rules of the Nasdaq National Market
System ("NASDAQ"). The Company acknowledges that the Underwriters may
engage in passive market making transactions in the Securities on NASDAQ
in accordance (and in compliance) with Regulation M under the Exchange
Act.
(u) The Company and each Subsidiary have filed all federal, state
and material local income and franchise tax returns required to be filed
through the date hereof except for returns being contested in good faith
and have paid all taxes due and owing thereon except for amounts being
contested in good faith, and no material tax deficiency is currently
being asserted against the Company or any Subsidiary that could have a
Material Adverse Effect.
(v) Each of the Company and its Subsidiaries is in compliance with
all environmental laws and with the terms and conditions of any permit,
license or approval required thereunder in connection with the operation
of its business, property and assets where the failure to be in such
compliance could reasonably be expected to have, singly or in the
aggregate, a Material Adverse Effect; and, except as disclosed in the
Prospectus, neither the Company nor any of its Subsidiaries has any
liability, absolute or contingent, under any environmental law and there
is no civil, criminal or administrative action, suit, demand, hearing,
notice of violation or deficiency, investigation, proceeding or notice or
demand letter pending or threatened against the Company or any of its
Subsidiaries under any environmental law.
(w) [The information set forth in the Prospectus under the caption
"Prospectus Summary-Recent Developments" is true and correct in all
material respects.]
<PAGE>
-11-
3. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder listed on Schedule I severally represents and warrants to
each Underwriter and the Company that:
(a) Such Selling Stockholder has full right, power and authority to
enter into this Agreement and to sell, assign, transfer and deliver the
Firm Securities to be sold by such Selling Stockholder hereunder. This
Agreement and the Power of Attorney attached hereto as Exhibit A have been
duly executed and delivered by such Selling Stockholder.
(b) Such Selling Stockholder will convey good and valid title to the
Securities to be delivered by such Selling Stockholder hereunder, free and
clear of all liens, encumbrances, equities and claims whatsoever.
Certificates in negotiable form for the aggregate number of Securities to
be sold by such Selling Stockholder have been placed in custody, under a
custody agreement with the Company as custodian in the form attached
hereto as Exhibit B.
(c) The information with respect to such Selling Stockholder included
in the Registration Statement and the Prospectus under the caption
"Principal and Selling Stockholders" and "Underwriting" does not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading.
(d) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by such
Selling Stockholder of the transactions contemplated herein, except such as
may have been obtained under the Act or otherwise and such as may be
required under state securities or the "Blue Sky" laws.
(e) The performance of this Agreement and the consummation of the
transactions contemplated hereby will not conflict with or result in a
breach or violation of any of the terms and provisions of or constitute a
default under or result in the creation or imposition of any lien, charge,
or encumbrance upon the assets or properties of such Selling Stockholder,
pursuant to any indenture, mortgage, deed of trust, voting trust agreement,
loan agreement, letter of credit agreement, bond, debenture, note agreement
or other evidence of indebtedness, lease, con-
<PAGE>
-12-
tract or other agreement or instrument to which such Selling Stockholder
is a party or under any statute or under any order, rule or regulation
applicable to such Selling Stockholder or of any court or other
governmental body.
(f) The Registration Statement, the Prospectus or any post-effective
amendment or supplement thereto will (when they become effective or are
filed with the Commission, as the case may be), conform in all material
respects to the requirements of the Act and the Rules and Regulations and
will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading.
(g) Such SELLING STOCKHOLDER has not taken and will not take,
directly or indirectly, any action designed to, or which has constituted,
or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Common Stock of the
Company and, other than as permitted by the Act, the SELLING STOCKHOLDER
will not distribute any prospectus or other offering material in connection
with the offering of the Shares.
(h) As to Stanley E. Fulton after due inquiry, and as to each of the
other SELLING STOCKHOLDERS, without having undertaken to determine
independently the accuracy or completeness of either the representations
and warranties of the Company contained herein or the information contained
in the Registration Statement or the documents incorporated therein by
reference, such SELLING STOCKHOLDER (a) has no reason to believe that the
representations and warranties of the Company contained in Section 2 above
are not true and correct, (b) is familiar with the Registration Statement
and (c) has no knowledge of any material fact, condition or information not
disclosed in the Registration Statement which has adversely affected or may
adversely affect the business of the Company or the Subsidiaries. The
sale of the Firm Shares by such SELLING STOCKHOLDER pursuant hereto is not
prompted by any information concerning the Company or the Subsidiaries
which is not set forth in the Registration Statement.
4. PURCHASE, SALE AND DELIVERY OF THE SECURITIES.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the
<PAGE>
-13-
terms and conditions herein set forth, each of the Selling Stockholders
agree, severally and not jointly, to sell to each of the Underwriters, and
each of the Underwriters agrees, severally and not jointly, to purchase
from each of the Selling Stockholders, at a purchase price of $[ ]
per share, the number of Firm Securities (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying the aggregate number
of Firm Securities to be sold by each of the Selling Stockholders, as set
forth opposite their respective names in Schedule I hereto by a fraction,
the numerator of which is the aggregate number of Firm Securities to be
purchased by such Underwriter as set forth opposite the name of such
Underwriter in Schedule II hereto and the denominator of which is the
aggregate number of Firm Securities to be purchased by all of the
Underwriters from all the Selling Stockholders hereunder (subject to
adjustment by you to eliminate fractions). The Representatives shall
release the Firm Securities for public sale promptly after this Agreement
becomes effective. The Representatives may from time to time change the
public offering price and other terms of the offering after the initial
public offering to such extent as they may determine.
Certificates in negotiable form for the total number of
Securities to be sold hereunder by the SELLING STOCKHOLDERS have been
placed in custody with the Company, as custodian (the "Custodian") pursuant
to the Custody Agreements executed by the SELLING STOCKHOLDERS for delivery
of all Securities. Each SELLING STOCKHOLDER specifically agrees that the
Firm Securities represented by the certificates held in custody for such
SELLING STOCKHOLDER under the Custody Agreement are subject to the interest
of the Underwriters hereunder, and that the arrangements made by such
SELLING STOCKHOLDER for such custody are to that extent irrevocable, and
that the obligations of such SELLING STOCKHOLDER hereunder shall not be
terminable by any act or deed of the SELLING STOCKHOLDER (or by any other
person, firm or corporation, including the Company, the Custodian or the
Underwriters) or by operation of law or by the occurrence of any other
event or events, except as set forth in the Custody Agreement. If any such
event should occur prior to the delivery to the Underwriters of the Firm
Securities hereunder, certificates for the Firm Securities shall be
delivered by the Custodian in accordance with the terms and conditions of
this Agreement as if such event had not occurred. The Custodian is
authorized to receive and acknowledge receipt of the proceeds of the sale
of the Securities held by it against the delivery of such Securities.
In addition, upon written notice from you to Stanley E. Fulton,
not more than 30 days from the date hereof, the Un-
<PAGE>
-14-
derwriters may purchase from time to time all or less than all of the
Additional Securities at the purchase price per share to be paid for the Firm
Securities. Stanley E. Fulton agrees to sell to the Underwriters such
Additional Securities and the Underwriters agree, severally and not jointly,
to purchase such Additional Securities. Such Additional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's
name bears to the total number of shares of Firm Securities (subject to
adjustment by you to eliminate fractions) and may be purchased by the
Underwriters only for the purpose of covering over-allotments made in
connection with the offering of the Firm Securities. This option may be
exercised at any time on or before the thirtieth day following the date
hereof, by written notice to Stanley E. Fulton. Such notice shall set forth
the aggregate number of Additional Securities as to which the option is being
exercised, and the date and time when the Additional Securities are to be
delivered (such date and time being herein referred to as an "Option Closing
Date"); PROVIDED, HOWEVER, that no Option Closing Date shall be earlier than
the Closing Date (as defined below) nor earlier than the second business day
after the date on which notice of the exercise of the option shall have been
given nor later than the eighth business day after the date on which notice
of the option shall have been given. No Additional Securities shall be sold
or delivered unless the Firm Securities previously have been, or
simultaneously are, sold and delivered. The right to purchase the Additional
Securities or any portion thereof may be surrendered and terminated at any
time upon notice by you to Stanley E. Fulton.
(b) Certificates in definitive form for the Firm Securities that
each Underwriter has agreed to purchase hereunder, and in such denomination
or denominations and registered in such name or names as such Underwriter
requests upon notice to the Selling Stockholders at least 48 hours prior to
the Closing Date, shall be delivered by or on behalf of the Selling
Stockholders to the Underwriters, against payment by or on behalf of such
Underwriter of the purchase price therefor by wire transfer of same day
funds, or such other payment procedures agreed to by the parties, to the
account of each Selling Stockholder. Such delivery of and payment for the
Firm Securities shall be made at the offices of Cahill Gordon & Reindel, 80
Pine Street, New York, New York 10005, at 9:00 A.M., New York time, on
October , 1997, or at such other place, time or date as you, the Company
and the Selling Stockholders may agree upon or as you may determine
pursuant to Section 9(a) hereof, such time and date of delivery against
payment being herein referred to as the
<PAGE>
-15-
"Closing Date." The Selling Stockholders will make such certificates
for the Firm Securities available for checking and packaging by the
Underwriters at the offices of BT Alex. Brown Incorporated in
[New York, New York] at least 24 hours prior to the Closing Date.
In the event the option with respect to the Additional Securities
is exercised, certificates in definitive form for the Additional Securities
that such Underwriter has agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as such
Underwriter requests upon notice to Stanley E. Fulton at least 48 hours
prior to the Option Closing Date, shall be delivered by Stanley E. Fulton
to the Underwriters, against payment by or on behalf of such Underwriter
of the purchase price therefore by wire transfer of same day funds or such
other payment procedures agreed to by the parties, to the account of
Stanley E. Fulton. Such delivery of and payment for the Additional
Securities shall be made at each Option Closing Date at the above-mentioned
offices. Stanley E. Fulton will make certificates for the Additional
Securities available for inspection, checking and packaging by the
Underwriters at the offices in [New York, New York] of BT Alex. Brown
Incorporated at least 24 hours prior to each Option Closing Date.
5. OFFERING BY THE UNDERWRITERS. After the Registration
Statement becomes effective, the Underwriters propose to offer for sale to
the public the Securities at the price and upon the terms set forth in the
Prospectus relating to the Securities.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees
with the Underwriters that:
(a) The Company will, if the registration statement is not effective
at the time of the execution and delivery of this Agreement, prepare and
timely file with the Commission an amendment to the registration statement
that includes the form of final prospectus, which amendment and form of
final prospectus shall contain all required information with respect to the
Securities and the offering thereof, and, if required by Rule 424(b), a
prospectus under Rule 424(b) (in each case only if the Representatives or
their counsel have not reasonably objected thereto after having been
furnished a copy thereof prior to the proposed filing thereof), and in each
case will notify the Representatives promptly of such filing and will use
its best efforts to cause the registration statement, if not
<PAGE>
-16-
effective at the time of execution of this Agreement (and any amendments
thereto), to become effective promptly. If required, the Company will
file the Prospectus and any amendments or supplements thereto with the
Commission in the manner and within the time period required by Rule
424(b) (but only if the Representatives or their counsel have not
reasonably objected thereto promptly after having been furnished a copy
thereof a reasonable time prior to the proposed filing thereof). During
any time when a prospectus relating to the Securities is required to be
delivered under the Act, the Company (i) will comply with all
requirements imposed upon it by the Act and the Rules and Regulations to
the extent necessary to permit the continuation of sales of or dealings
in the Securities in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented, and (ii) will not file with
the Commission the Prospectus or the amendment referred to in the second
sentence of Section 2(a) hereof or any amendment or supplement to such
Prospectus or any amendment to the Registration Statement of which the
Representatives and their counsel shall not previously have been advised
and furnished a copy for a reasonable period of time prior to the
proposed filing and as to which filing the Representatives and their
counsel shall not have given their respective consent, which consent
will not be unreasonably withheld. The Company will prepare and will
file with the Commission, in accordance with the Act and the Rules and
Regulations, promptly upon request by the Representatives or counsel for
the Representatives, any amendments to the Registration Statement or
amendments or supplements to the Prospectus that may be necessary or
reasonably advisable in connection with the distribution of the
Securities by the Underwriters, and the Company will use its best
efforts to cause any such amendment to the Registration Statement to be
declared effective by the Commission promptly. The Company will advise
the Representatives, promptly after it receives notice thereof, of the
time when the Registration Statement or any amendment thereto has been
filed or declared effective or the Prospectus or any amendments or
supplements thereto have been filed.
(b) The Company will advise the Representatives, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or any amendment thereto or any order
preventing or suspending the use of any Preliminary Prospectus or the
<PAGE>
-17-
Prospectus, or any amendments or supplements thereto, (ii) the
suspension of the qualification of the Securities for offering or sale
in any jurisdiction, (iii) the institution, threatening or contemplation
of any proceeding for any such purpose or (iv) any request made by the
Commission for amending the Registration Statement, for amending or
supplementing the Prospectus or for additional information. The Company
will use its best efforts to prevent the issuance of any such stop order
and, if any such stop order is issued, to obtain the withdrawal thereof
as promptly as possible.
(c) The Company will cooperate with the Representatives in
arranging for the qualification of the Securities for offering and sale
under the securities or "Blue Sky" laws of such jurisdictions in the
United States and Canada as the Representatives may designate and will
continue such qualifications in effect for as long as may be necessary
to complete the distribution of the Securities; PROVIDED that in
connection therewith the Company shall not be required to qualify as a
foreign corporation or to execute a general consent to service of
process in any jurisdiction or to subject itself to taxation in respect
of doing business in any jurisdiction in which it is not otherwise
subject.
(d) During such time as a prospectus relating to the Securities is
required to be delivered under the Act, if after due inquiry, the
Company should become aware of any event that occurs, and as a result of
which the Prospectus as then amended or supplemented would include any
untrue statement of a material fact, or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if the Company should be of the opinion that for any
other reason it is necessary at any time to amend or supplement the
Prospectus to comply with the Act or the Rules and Regulations, the
Company will promptly notify the Representatives and their counsel
thereof and the Company will prepare and, subject to Section 6(a)
hereof, will file with the Commission, at its sole expense, an amendment
to the Registration Statement or an amendment or supplement to the
Prospectus (in form and substance reasonably satisfactory to the
Representatives and their counsel and in compliance with the Act and the
Rules and Regulations) so that the Prospectus as so supplemented or
amended will not contain an untrue statement of material fact or omit to
<PAGE>
-18-
state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading, or so that the Prospectus will comply
with law, and will deliver to the Representatives, without charge, such
number of copies thereof as they may reasonably request.
(e) The Company will, without charge, provide (i) to the
Representatives and to their counsel a signed copy of the registration
statement originally filed and each amendment thereto (in each case
including exhibits thereto) and the Registration Statement and (ii) so
long as a prospectus relating to the Securities is required to be
delivered under the Act, as many copies of each Preliminary Prospectus
and the Prospectus relating to the Securities and any amendment or
supplement thereto as each Underwriter may reasonably request.
(f) The Company, as soon as reasonably practicable, will make
generally available to holders of the Securities and to the Underwriters
consolidated earning statements of the Company (which need not be
certified by an independent public accountant) that satisfy the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
(g) For and during the period ending five years after the
effective date of the Registration Statement, the Company will furnish
to the Representatives and, upon request, to each of the other
Underwriters copies of all reports and other communications (financial
or otherwise) furnished by the Company to its securityholders generally
and copies of any reports or financial statements furnished to or filed
by the Company with the Commission or any national securities exchange
on which any class of securities of the Company may be listed.
(h) Prior to the Closing Date and any Option Closing Date, as the
case may be, the Company will furnish to the Representatives, as soon as
they have been prepared and are available, a copy of any unaudited
interim consolidated financial statements of the Company and any pro
forma information for any period subsequent to the period covered by its
most recent financial statements included in the Registration Statement
and the Prospectus.
(i) The Company will file with the Nasdaq National Market
System all documents and notices required by the Nasdaq National Market
System of companies that have is-
<PAGE>
-19-
sued securities that are traded in the over-the-counter market and
quotations for which are reported by the Nasdaq National Market System.
(j) The Company will not at any time, directly or indirectly, take
any action designed, or that might reasonably be expected, to cause or
result in, or that will constitute, stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of
any of the Securities in violation of the Exchange Act or any applicable
rules of the Nasdaq National Market System.
(k) If, prior to the completion of the distribution of the
Securities, the Company commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after
the date the Registration Statement becomes or has become effective with
the Commissioner with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported
in the Prospectus relating to the Securities, if any, concerning the
Company's business with Cuba or with any person or affiliate located in
Cuba changes in any material way, the Company will provide the
Department notice of such business or change, as appropriate, in a form
acceptable to the Department.
7. COVENANTS OF SELLING STOCKHOLDERS. Each Selling Stockholder
agrees with the several Underwriters as follows:
(a) Such Selling Stockholder will cooperate to the extent necessary
to cause the Registration Statement or any post-effective amendment thereto
to become effective at the earliest possible time.
(b) Such Selling Stockholder will use such Selling Stockholder's
reasonable best efforts to do or perform all things required to be done or
performed by it prior to the Closing Date to satisfy all conditions
precedent to the delivery of the Securities.
(c) During a period of 90 days from the date hereof ("Lock-up
Period"), such Selling Stockholder will not, without the
Representatives' prior written consent, offer, sell, contract to sell,
or otherwise dispose of, directly or indirectly, any shares of Common
Stock or any interests therein, or any securities convertible into, or
exchangeable for, shares of Common Stock, or rights to acquire the
<PAGE>
-20-
same except for (i) Securities issued pursuant to this Agreement; (ii)
Common Stock or other equity securities issued in connection with any
merger or other acquisition by the Company provided that such Common
Stock or other equity securities are specifically made subject to the
restrictions of this paragraph for the Lock-up Period and (iii) Common
Stock issuable on exercise of options or warrants referred to in the
Prospectus.
(d) Such Selling Stockholder will not take, directly or
indirectly, any action designed to or that might reasonably be expected
to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Securities in
violation of the Exchange Act or any applicable rules of the Nasdaq
National Market System.
(e) Each Selling Stockholder agrees to notify the Representatives
promptly of any information that comes to such Selling Stockholder's
attention that would cause such Selling Stockholder to have reason to
believe that his or her representations, warranties and statements in
this Agreement are not accurate in all material respects.
(f) Except as herein contemplated with respect to the Securities
to be included in the Registration Statement, each Selling Stockholder
agrees to waive any registration rights to which such Selling
Stockholder may be entitled in connection with the public offering
herein contemplated.
8. EXPENSES. The Selling Stockholders, jointly and severally,
agree to pay all costs and expenses incident to the performance of their
obligations under this Agreement, whether or not the transactions
contemplated herein are consummated or this Agreement is terminated, as
provided in this Section 8 hereof including all costs and expenses
incident to (i) the printing or other production of documents with
respect to the transactions, including any costs of printing the
registration statement originally filed with respect to the Securities
and any amendment thereto and the Registration Statement, any
Preliminary Prospectus and the Prospectus and any amendment or
supplement thereto, (ii) the printing (or reproduction) and delivery of
this Agreement, the Securities, any Blue Sky Memoranda and all other
documents and agreements printed (or reproduced) and delivered in
connection with the offering of the Securities, (iii) all arrangements
relating to the delivery to the Underwriters of copies of the foregoing
documents, (iv) the fees and
<PAGE>
-21-
disbursements of the counsel, the accountants and any other experts or
advisors retained by the Company or its subsidiaries, (v) preparation
(including printing), issuance and delivery to the Underwriters of
certificates evidencing the Securities, (vi) the qualification of the
Securities in the United States and Canada under state securities and "Blue
Sky" laws, including filing fees and reasonable fees and disbursements of
counsel for the Underwriters relating thereto, (vii) the filing fees of the
Commission and the National Association of Securities Dealers, Inc. relating
to the Securities, (viii) expenses of the Company and its subsidiaries in
connection with any meetings with prospective investors in the Securities,
(ix) advertising relating to the offering of the Securities (other than as
shall have been specifically approved in writing by the Underwriters to be
paid by the Underwriters), (x) the fees and expenses incurred in connection
with the quotation of the Securities on the Nasdaq National Market System and
(xi) the costs and expenses incident to the performance by the Selling
Stockholders of their obligations hereunder and in connection with the offer,
sale and delivery of the Securities to be sold by it, including any stock
transfer taxes payable upon the sale of such Securities to the Underwriters,
the fees and expenses of any counsel retained by them and the underwriting
discounts and commissions payable to the Underwriters.
If the sale of the Securities provided for herein is not
consummated because any condition to the obligations of the Underwriters set
forth in Section 9 hereof is not satisfied, because this Agreement is
terminated pursuant to Section 12 hereof or because of any failure, refusal
or inability on the part of the Company, any of the Company's subsidiaries or
any Selling Stockholder to perform all obligations and satisfy all conditions
on their respective parts to be performed or satisfied hereunder (other than
solely by reason of a default by the Underwriters of its obligations
hereunder after all conditions hereunder have been satisfied in accordance
herewith), the Selling Stockholders, jointly and severally, will promptly
reimburse the Underwriters upon demand for all reasonable out-of-pocket
expenses (including reasonable fees and disbursements of counsel for the
Underwriters) that shall have been incurred by the Underwriters in
connection with the proposed purchase and sale of the Securities not so
delivered.
9. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligation of
the Underwriters to purchase and pay for the Firm Securities on the Closing Date
and the Additional Securities on each Option Closing Date shall be subject to
the following additional conditions:
<PAGE>
-22-
(a) If the registration statement, as amended, with respect to the
Securities has not been declared effective as of the time of execution
and delivery hereof, the registration statement shall have been declared
effective not later than 11:00 A.M., New York City time, on the date of
this Agreement or, if any post-effective amendment to the Registration
Statement has been filed, 11:00 A.M., New York City time, on the date on
which such post-effective amendment to the Registration Statement has
been filed with the Commission, or such later time and date as shall
have been expressly consented to by the Representatives in writing; if
required, the Prospectus and any amendments or supplements thereto shall
have been timely filed in accordance with Rule 430A and Rule 424(b); no
stop order suspending the effectiveness of the Registration Statement or
any amendment thereto shall have been issued and no proceedings for that
purpose shall have been instituted or, to the best knowledge of the
Company or the Underwriters, shall be contemplated or threatened by the
Commission.
(b) The Underwriters shall have received an opinion, in form and
substance satisfactory to the Underwriters and Cahill Gordon & Reindel,
counsel for the Underwriters, dated the Closing Date and each Option
Closing Date, as the case may be, and addressed to the Underwriters, of
Hughes & Luce, counsel for the Company and its subsidiaries to the effect
that:
(i) The Company and each Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of
the state of its incorporation. Each of the Company and the
Subsidiaries has the corporate power and authority to conduct its
business substantially as described in the Registration Statement and
the Prospectus and is duly licensed or qualified to do business and in
good standing as a foreign corporation in all jurisdictions in which
the Company and each Subsidiary has offices or employees or property
owned or leased by them makes such qualification or license necessary
except where the failure to so qualify or be licensed would not have
Material Adverse Effect.
(ii) No authorization, approval, consent or license of any
state or federal governmental or regulatory body, except as may be
required under the Act or the "Blue Sky" laws of the various
jurisdictions or state laws relating to gaming or gaming machines
or
<PAGE>
-23-
devices (except as specifically stated), is required in connection
with the (A) authorization, issuance, transfer, sale or delivery of
the Securities under this Agreement; (B) execution, delivery and
performance of this Agreement by the Company; (C) taking of any
action contemplated herein or in the Registration Statement or
Prospectus (other than with respect to the Colorado Expansion (as
defined therein) and state laws relating to gaming or gaming
machines or devices), or if so required all such authorizations,
approvals, consents and licenses, specifying the same, have been
obtained and are in full force and effect.
(iii) The Company has an authorized and outstanding capital
stock, stock options and warrants as set forth in the Registration
Statement and the Prospectus. The outstanding shares of the Common
Stock are, and all of the Securities will be, upon sale and payment
therefor under this Agreement, duly authorized, validly issued,
fully paid and nonassessable, and are not subject to statutory
preemptive rights. The Common Stock has been duly authorized for
quotation on the Nasdaq National Market. All issuances of
securities by the Company were exempt from, or complied in all
respects with, the registration or qualification provisions of all
applicable federal and state securities laws.
(iv) All of the issued and outstanding shares of the capital
stock of each Subsidiary are validly issued, fully paid and
nonassessable and, to such counsel's knowledge, all of the issued
and outstanding shares of stock of each Subsidiary are owned by the
Company free and clear of all mortgages, pledges, liens, security
interests, conditional sales agreements, charges and encumbrances
of every nature.
(v) To such counsel's knowledge, no holder of any securities
of the Company has the right to require registration of shares of
the Common Stock or other securities of the Company because of the
filing or effectiveness of the Registration Statement.
(vi) The Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act.
<PAGE>
-24-
(vii) The Company has full corporate power and authority to
enter into this Agreement and this Agreement has been duly
authorized, executed and delivered by the Company.
(viii) The Company possesses all state and federal
authorizations, approvals, consents and licenses necessary for the
operation of a gaming establishment at the Colorado Central Station
Casino and the Colorado Grande Casino.
(ix) The Registration Statement and the Prospectus, and each
amendment thereof or supplement thereto, comply in all material
respects as to form with the requirements of the Act and the Rules
and Regulations (except that no opinion need be expressed as to
financial statements, financial statement notes and other financial
and statistical data contained in the Registration Statement or the
Prospectus).
(x) The descriptions in the Registration Statement and
Prospectus of contracts and other documents are accurate in all
material respects and fairly present the information required to be
shown; and such counsel does not know of any contracts or documents
of a character required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement (including, for this purpose, all exhibits
filed with respect to any document incorporated by reference
therein) that are not described or filed as required; it being
understood that such counsel need express no opinion as to the
financial statements, financial notes or schedules or other
financial data included therein.
(xi) The Registration Statement has become effective under the
Act, and, to the knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are threatened,
pending or contemplated. All filings required by Rule 424 and Rule
430A of the Rules and Regulations have been made.
(xii) The execution and delivery of this Agreement by the
Company, the consummation by the Company of the transactions herein
contemplated and the compliance with the terms of this Agreement do
not and
<PAGE>
-25-
will not conflict with or result in a breach of any of the terms or
provisions of or violate or constitute a default under, the
Certificate of Incorporation or By-laws of the Company or any
Subsidiary, or any material indenture or mortgage known to such
counsel or other material agreement or instrument known to such
counsel to which the Company or any Subsidiary, is a party or by
which the Company or any Subsidiary or any of their respective
properties is bound, or any existing federal or state statute, rule
or regulation, or any judgment, order or decree known to such
counsel, of any government, governmental instrumentality or court,
domestic or foreign, having jurisdiction over the Company or any
Subsidiary or any of their respective properties.
Such counsel shall also state that such counsel has participated in
the preparation of the Registration Statement and the Prospectus and
although such counsel has not independently checked the accuracy or
completeness of or otherwise verified, and such counsel is not passing
on and does not assume responsibility for the accuracy or completeness
of, the Registration Statement or the Prospectus, such counsel has
generally reviewed and discussed such information with representatives
of the Company, the Underwriters and their counsel and accountants for
the Company. Based on such review and discussion, nothing has come to
the attention of such counsel to lead them to believe that, both as of
the date on which the Registration Statement became effective and as of
the Closing Date and each Option Closing Date, as the case may be,
either the Registration Statement, or any amendment or supplement
thereto, contained or contains any untrue statement of a material fact
or omitted or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
the Prospectus, or any amendment or supplement thereto, contained or
contains any untrue statement of a material fact or omitted or omits to
state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading (except that no opinion need be expressed
as to financial statements, financial statement notes and other
financial and statistical data contained in the Registration Statement
or the Prospectus).
In rendering such opinion, such counsel may rely as to all matters
of law other than the law of the United
<PAGE>
-26-
States or of the State of Texas and the corporate law of the State of
Nevada upon opinions of counsel satisfactory to you, in which case the
opinion shall state that they have no reason to believe that you and they
are not entitled so to rely.
(c) Concurrently with the execution and delivery of this Agreement
and on the Closing Date and each Option Closing Date, Lionel Sawyer &
Collins, special Nevada counsel to the Company, shall furnish to you an
opinion, in form and substance satisfactory to you, dated as of the date
of its delivery, to the effect that (i) such counsel has reviewed the
statements contained in the Prospectus under the heading "Regulation"
insofar as such statements relate to the laws of the State of Nevada and
federal gaming laws and nothing has come to the attention of such
counsel to lead them to believe that such statements contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading and (ii) no authorization, approval, consent or license of
any state or federal governmental or regulatory body, except as may be
required under the Act or the "Blue Sky" laws of the various
jurisdictions, is required in connection with the (A) authorization,
issuance, transfer, sale or delivery of the Securities under this
Agreement or (B) taking of any action contemplated herein or in the
Registration Statement or Prospectus, or if so required all such
authorizations, approvals, consents and licenses specifying the same
have been obtained and are in full force and effect.
(d) Concurrently with the execution and delivery of this Agreement
and on the Closing Date and each Option Closing Date, Issacson,
Rosenbaum, Woods & Levy, P.C., special Colorado counsel to the Company
shall furnish to you an opinion in form and substance satisfactory to
you, dated as of the date of its delivery, to the effect that (i) such
counsel has reviewed the statements contained in the Prospectus under
the heading "Regulation" insofar as such statements relate to the laws
of the State of Colorado and nothing has come to the attention of such
counsel to lead them to believe that such statements contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading and (ii) no authorization, approval, consent or license of
any state or federal governmental or regulatory body, except as may
<PAGE>
-27-
be required under the Act or the "Blue Sky" laws of the various
jurisdictions, is required in connection with the (A) authorization,
issuance, transfer, sale or delivery of the Securities under this
Agreement or (B) taking of any action contemplated herein or in the
Registration Statement or Prospectus, or if so required all such
authorizations, approvals, consents and licenses specifying the same
have been obtained and are in full force and effect.
(e) The Selling Stockholders shall have furnished to you the
opinion of Hughes and Luce, L.L.P. counsel for the Selling Stockholders,
or of such other counsel to the Selling Stockholders as shall be
satisfactory to Cahill Gordon & Reindel, counsel for the Underwriters,
dated the Closing Date and each Option Closing Date, as the case may be,
to the effect that:
(i) This Agreement, the Powers of Attorney and the Custody
Agreements have been duly executed and delivered by each of the
Selling Stockholders.
(ii) The Selling Stockholders have the power and authority to
sell, transfer and deliver in the manner provided in this Agreement
the Securities being sold by the Selling Stockholders hereunder.
(iii) The delivery by the Selling Stockholders to the several
Underwriters of certificates for the Securities being sold
hereunder by the Selling Stockholders against payment therefor as
provided herein, assuming the Representatives purchased the
Securities in good faith without knowledge of any adverse claim,
will pass good and valid title to such Securities to the several
Underwriters, free and clear of all liens, encumbrances, equities
and claims whatsoever.
(f) The Underwriters shall have received an opinion, in form and
substance reasonably satisfactory to the Underwriters, dated the Closing
Date and each Option Closing Date, as the case may be, and addressed to
the Underwriters, of Cahill Gordon & Reindel, counsel for the
Underwriters, with respect to the sufficiency of certain corporate
proceedings and other legal matters relating to this Agreement and the
Securities and such other related matters as the Representatives may
reasonably require. In rendering such opinion, Cahill Gordon & Reindel
shall have received, in form and substance satisfactory to such counsel,
and may rely upon, such certificates and other docu-
<PAGE>
-28-
ments and information as they may reasonably request to pass upon
such matters.
(g) The Underwriters shall have received from Deloitte & Touche,
LLP a letter dated the date hereof and the Closing Date and each Option
Closing Date, as the case may be, and addressed to the Underwriters, in
substantially the form previously approved by the Representatives and in
form and substance reasonably satisfactory to the Representatives and
Cahill Gordon & Reindel, counsel for the Underwriters.
(h) The representations and warranties of the Company and the
Selling Stockholders contained in this Agreement shall be true and
correct in all material respects on and as of the date hereof and on and
as of the Closing Date and each Option Closing Date, as the case may be,
as if made on and as of such date; the statements of the Company's
officers made pursuant to any certificate delivered in accordance with
the provisions hereof shall be true and correct in all material respects
on and as of the date made and on and as of the Closing Date and each
Option Closing Date, as the case may be; the Company and the Selling
Stockholders shall have complied in all material respects with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date and each Option
Closing Date, as the case may be; and subsequent to the date of the most
recent financial statements in the Prospectus, there shall have been no
Material Adverse Change or any development involving a prospective
Material Adverse Change.
(i) The sale of the Securities by the Selling Stockholders hereunder
shall not be enjoined (temporarily or permanently) on the Closing Date or
any Option Closing Date, as the case may be.
(j) Subsequent to the respective dates as of which information is
given in the Prospectus, except in each case as described in the
Prospectus, none of the Company and its subsidiaries shall have incurred
any liabilities or obligations, direct or contingent (other than in the
ordinary course of business), that are material to the Company and its
subsidiaries, taken as a whole, or entered into any transactions not in
the ordinary course of business that are material to the Company and its
subsidiaries, taken as a whole, and there shall not have been any
adverse change in the capital stock or long-term indebted-
<PAGE>
-29-
ness of the Company and its subsidiaries that is material to the
Company and its subsidiaries, taken as a whole.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the conduct of
the business and operations of each of the Company and its subsidiaries
shall not have been interfered with by strike, fire, flood, hurricane,
accident or other calamity (whether or not insured) or by any court or
governmental action, order or decree, and, except as otherwise stated
therein, the properties of each of the Company and its subsidiaries
shall not have sustained any loss or damage (whether or not insured) as
a result of any such occurrence, except any such interference, loss or
damage that would not have a Material Adverse Effect.
(l) The Underwriters shall have received certificates, in form and
substance reasonably satisfactory to the Underwriters and Cahill Gordon
& Reindel, counsel for the Underwriters, dated the Closing Date and each
Option Closing Date, as the case may be, and addressed to the
Underwriters, of the Company, executed by its chief executive officer or
president and the chief financial officer, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct in all material respects as if made
on and as of the Closing Date and each Option Closing Date, as the
case may be, and the Company has performed in all material respects
all covenants and agreements and satisfied all conditions to be
performed or satisfied at or prior to the Closing Date and each
Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued,
and, to the best of such officers' knowledge, no proceedings for
those purposes have been instituted or threatened or are
contemplated by the Commission;
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, the Company and its respective subsidiaries have not
sustained any material loss or interference with their respective
businesses
<PAGE>
-30-
or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor
dispute or any legal or governmental proceeding and there has not
been any material change in the capital stock, long-term debt,
obligations under capital leases or short-term borrowings or other
agreements or instruments relating to the ownership of the property
of the Company and its subsidiaries or any Material Adverse Change,
or any development involving a prospective Material Adverse Change,
except in each case as described in or contemplated by the
Prospectus; and
(iv) To the best of such officers' knowledge and belief, the sale
of the Securities by the Company has not been enjoined (temporarily or
permanently).
(m) Each Selling Stockholder, shall have furnished to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of the
Selling Stockholders, prohibiting such persons from offering, selling,
contracting to sell or otherwise disposing, directly or indirectly, of any
shares of Common Stock or any interests therein, or any securities
convertible into, or exchangeable for, shares of Common Stock or rights to
acquire the same, during the Lock-up Period, without the prior written
consent of the Representatives.
(n) All the representations and warranties of the Selling
Stockholders contained in this Agreement shall be true and correct in
all material respects on and as of the date hereof and on and as of the
Closing Date and each Option Closing Date, as the case may be, as if
made on and as of such date, and you shall have received certificates,
dated as of the Closing Date and signed by or on behalf of the Selling
Stockholders to the effect set forth in this Section 9(h).
(o) The Selling Stockholders shall not have failed at or prior to
the Closing Date and each Option Closing Date, as the case may be to
have performed or complied with any of their agreements herein contained
and required to be performed or complied with by them hereunder at or
prior to the Closing Date.
On or before the Closing Date and each Option Closing Date, as the
case may be, the Underwriters and Cahill Gordon & Reindel, counsel for the
Underwriters, shall have received such
<PAGE>
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further documents, opinions, certificates and schedules or instruments relating
to the business, corporate, legal and financial affairs of the Company and each
of its subsidiaries and the Selling Stockholders as they shall have heretofore
reasonably requested.
All such opinions, certificates, letters, schedules, documents or
instruments delivered pursuant to this Agreement will comply with the provisions
hereof only if they are reasonably satisfactory in all respects to the
Underwriters and Cahill Gordon & Reindel, counsel for the Underwriters. The
Company and each of its subsidiaries and the Selling Stockholders shall furnish
to the Underwriters such conformed copies of such opinions, certificates,
letters, schedules, documents and instruments in such quantities as the
Underwriters shall reasonably request.
10. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, each Selling Stockholder and each person, if any, who controls
any Underwriter or any Selling Stockholder within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter, such
Selling Stockholder or such controlling person may become subject under the
Act, the Exchange Act or otherwise, insofar as any such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon:
(i) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any
amendment thereto or any Preliminary Prospectus or the Prospectus
or any amendments or supplements thereto or (B) any application or
other document, or any amendment or supplement thereto, executed by
the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify
the Securities under the securities or "Blue Sky" laws thereof or
filed with the Commission or any securities association or
securities exchange (each an "Application"); or
(ii) the omission or alleged omission to state in such
Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement
thereto, or any Application, a material fact required to be stated
therein or necessary to make the statements therein not misleading,
<PAGE>
-32-
and will reimburse, as incurred, each Underwriter, each Selling Stockholder
and each such controlling person for any reasonable legal or other
out-of-pocket expenses reasonably incurred by any such Underwriter, Selling
Stockholder or any such controlling person in connection with investigating
or defending against or appearing as a third-party witness in connection with
any such loss, claim, damage, liability or action in respect thereof;
PROVIDED that the Company will not be liable in any such case to the extent,
but only to the extent, that any such loss, claim, damage, or liability
arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in such Registration Statement
or any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendments or supplements thereto, or any Application in reliance upon and in
conformity with written information furnished to the Company by the
Underwriters with respect to the Underwriters, or by the Selling Stockholders
with respect to the Selling Stockholders specifically, for use therein;
PROVIDED, FURTHER, that the Company will not be liable to any Underwriter if
such untrue statement or omission or alleged untrue statement or omission was
contained or made in any Preliminary Prospectus and completely corrected in
the Prospectus and any such loss, liability, claim, damage or expense
suffered or incurred by any Underwriter resulted from any action, claim or
suit by any person who purchased Securities that are the subject thereof from
any Underwriter and such Underwriter failed to deliver or provide a copy of
the Prospectus relating to the Securities to such person with or prior to the
confirmation of the sale of such Securities sold to such person in any case
where delivery is required by the Act or the Rules and Regulations, unless
such failure to deliver or provide a copy of the Prospectus relating to the
Securities was a result of noncompliance by the Company with Section 6(e)(ii)
of this Agreement. This indemnity agreement will be in addition to any
liability that the Company may otherwise have to the indemnified parties.
The Company shall not be liable under this Section 10 for any settlement of
any claim or action effected without its consent, which shall not be
unreasonably withheld.
(b) Each Selling Stockholder agrees, severally but not jointly, to
indemnify and hold harmless the Company, its directors and officers who
signed the Registration Statement, each Underwriter and each person, if any,
who controls the Company or any Underwriter within the meaning of Section 15
of the Act of Section 20 of the Exchange Act against any losses, claims,
damages or liabilities to which the Company, or any such director, officer or
underwriter or controlling person may become subject under the Act, the
Exchange Act, or otherwise, insofar as such
<PAGE>
-33-
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon (i) any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or any Application or (ii) the omission or the alleged
omission to state therein a material fact required to be stated in the
Registration Statement or any amendment thereto, any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, or necessary to
make the statements therein not misleading, (i) as to Stanley E. Fulton and
(ii) in each case as to each of the other Selling Stockholders only to the
extent that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by any Selling Stockholder through the
Company (but only in its capacity as custodian of the Selling Stockholders)
specifically for use therein; and, subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any legal or
other expenses incurred by the Company or any such director, officer or
Underwriter or controlling person in connection with investigating or
defending against or appearing as a third-party witness in connection with
any such loss, claim, damage, liability or action in respect thereof;
PROVIDED, that each Selling Stockholder shall not be liable under this
Section 10 for any amounts in excess of the product of the purchase price per
share set forth in Section 4 hereof and the number of shares being sold by
such Selling Stockholder hereunder. This indemnity agreement will be in
addition to any liability that the Selling Stockholders may otherwise have to
the indemnified parties. No Selling Stockholder shall be liable under this
Section 10 for any settlement of any claim or action effected without its
consent, which shall not be unreasonably withheld.
(c) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its directors and each of its officers who
signed the Registration Statement, each Selling Stockholder and each person,
if any, who controls the Company or any Selling Stockholder within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act against
any losses, claims, damages or liabilities to which the Company, or any such
director, officer or Selling Stockholder or controlling person may become
subject under the Act, the Exchange Act, or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon (i) any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus
<PAGE>
-34-
or any amendment or supplement thereto, or any Application or (ii) the
omission or the alleged omission to state therein a material fact required to
be stated in the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by
any Underwriter through the Representatives specifically for use therein;
and, subject to the limitation set forth immediately preceding this clause,
will reimburse, as incurred, any legal or other expenses incurred by the
Company or any such director, officer or Selling Stockholder or controlling
person in connection with investigating or defending against or appearing as
a third-party witness in connection with any such loss, claim, damage,
liability or action in respect thereof. This indemnity agreement will be in
addition to any liability that the Underwriters may otherwise have to the
indemnified parties. No Underwriter shall be liable under this Section 10
for any settlement of any claim or action effected without its consent, which
shall not be unreasonably withheld.
(d) Promptly after receipt by an indemnified party under this
Section 10 of notice of the commencement of any action for which such
indemnified party is entitled to indemnification under this Section 10, such
indemnified party will, if a claim in respect thereof is to be made against
the indemnifying party under this Section 10, notify the indemnifying party
of the commencement thereof, but the omission so to notify the indemnifying
party will not relieve it from any liability that it may have to any
indemnified party otherwise than under this Section 10. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified
party; PROVIDED that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have been advised by counsel that there may be one or more legal defenses
available to it and/or other indemnified parties that are different from or
additional to those available to the indemnifying party, then the
indemnifying party shall not have the right to direct the defense of such
action on behalf of such indemnified party or parties and such indemnified
party or parties shall have the right to select separate counsel to defend
such action on behalf
<PAGE>
-35-
of such indemnified party or parties. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof and approval by such indemnified party of counsel appointed to defend
such action, the indemnifying party will not be liable to such indemnified
party under this Section 10 for any legal or other expenses, other than
reasonable costs of investigation, subsequently incurred by such indemnified
party in connection with the defense thereof, unless (i) the indemnified
party shall have employed separate counsel in accordance with the proviso to
the immediately preceding sentence (it being understood, however, that in
connection with such action the indemnifying party shall not be liable for
the expenses of more than one separate counsel (in addition to local counsel)
in any one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances,
designated by any Underwriter in the case of paragraphs (a) and (b) of this
Section 10 or the Company and the Selling Stockholder, in the case of
paragraph (c) of this Section 10, representing the indemnified parties under
such paragraph (a), (b) or paragraph (c), as the case may be, who are parties
to such action or actions), (ii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party or (iii) the indemnifying party shall have failed to
assume the defense or retain counsel reasonably satisfactory to the
indemnified party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs
and expenses of any settlement of such action effected by such indemnified
party without the consent of the indemnifying party, which consent shall not
be unreasonably withheld.
(e) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this Section 10 is for any reason unavailable
or insufficient to hold harmless an indemnified party in respect of any
losses, claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and
the indemnified party on the other from the offering of the Securities or
(ii) if the allocation provided by the foregoing clause (i) is not permitted
by applicable law, not only such relative benefits but also the relative
fault of the indemnifying party or parties on the one hand and the
indemnified party on the other
<PAGE>
-36-
in connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative benefits received by the Company
and the Selling Stockholders on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as (x) the total proceeds
from the offering (net of underwriter's discounts and commissions but before
deducting expenses) received by the Selling Stockholders and (y) the total
underwriting discounts and commissions received by the Underwriters,
respectively, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by an indemnified party or
parties on the one hand, or the indemnifying party or parties on the other,
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances. The Company, the
Selling Stockholders and the Underwriters agree that it would not be
equitable if the amount of such contribution were determined by PRO RATA or
per capita allocation (even if the Company and the Selling Stockholders on
the one hand and the Underwriters on the other hand were treated as one
entity for such purpose) or by any other method of allocation that does not
take into account the equitable considerations referred to in the first
sentence of this paragraph (d). Notwithstanding any other provision of this
paragraph (d), no Underwriter shall be obligated to make contributions
hereunder that in the aggregate exceed the total underwriting discounts and
commissions received by such Underwriter under this Agreement, less the
aggregate amount of any damages that such Underwriter has otherwise paid or
been required to pay by reason of the untrue or alleged untrue statements or
the omissions or alleged omissions to state a material fact, and no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. No Selling Stockholder shall be
liable under this Section 10 for any amounts in excess of the product of the
purchase price per share set forth in Section 4 and the number of shares
being sold by such Selling Stockholder hereunder. For purposes of this
paragraph (d), each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have
the same rights to contribution as such Underwriter, and each director of the
Company, and each officer of the Company who signed the Registration
Statement and each person, if any, who
<PAGE>
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controls the Company or any Selling Stockholder within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, shall have the same rights
to contribution as the Company or such Selling Stockholder, as the case may
be.
11. SURVIVAL CLAUSE. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, the
Company's officers, the Selling Stockholders and the Underwriters set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company or any of its officers or
directors or any Selling Stockholder, the Underwriters or any controlling
person referred to in Section 10 hereof and (ii) delivery of and payment for
the Securities. The respective agreements, covenants, indemnities and other
statements set forth in Sections 8 and 10 hereof shall remain in full force
and effect, regardless of any termination or cancellation of this Agreement.
12. TERMINATION.
(a) This Agreement may be terminated in the sole discretion of the
Representatives by notice to the Company and the Selling Stockholders, given
prior to the Closing Date or Option Closing Date, as the case may be, in the
event that the Company or any of the Selling Stockholders shall have failed,
refused or become unable to perform all obligations and satisfy all
conditions on their respective parts to be performed or satisfied hereunder
at or prior thereto or, if at or prior to the Closing Date or Option Closing
Date, as the case may be:
(i) the Company or the Subsidiaries shall have sustained any loss or
interference with respect to its businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any strike, labor dispute, slow down or work stoppage
or any legal or governmental proceeding, which loss or interference, in
the sole judgment of the Underwriters, has had or has a Material Adverse
Effect, or there shall have been, in the sole judgment of the
Underwriters, any event or development that, individually or in the
aggregate, has or could be reasonably likely to have a Material Adverse
Effect (including without limitation a change in control of the
Company), except in each case as described in the Prospectus (exclusive
of any amendment or supplement thereto);
<PAGE>
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(ii) trading in securities of the Company or in securities generally
on the Nasdaq National Market System shall have been suspended or minimum
or maximum prices shall have been established on the Nasdaq National Market
System;
(iii) a banking moratorium shall have been declared by New York or
United States authorities;
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or any other national or international
calamity or emergency or (C) any material change in the financial
markets of the United States which, in the sole judgment of the
Representatives, makes it impracticable or inadvisable to proceed with
the public offering or the delivery of the Securities as contemplated by
the Registration Statement, as amended as of the date hereof; or
(b) Termination of this Agreement pursuant to this Section 12
shall be without liability of any party to any other party except as provided
in Section 11 hereof.
13. INCREASE IN UNDERWRITERS' COMMITMENTS. If any Underwriter
shall default in its obligation to take up and pay for the Securities to be
purchased by it hereunder on the Closing Date or any Option Closing Date and
if the amount of Securities that all Underwriters so defaulting shall have
agreed but failed to take up and pay for does not exceed 10% of the total
number of Securities that the Underwriters are obligated to purchase on the
Closing Date or Option Closing Date, as the case may be, the non-defaulting
Underwriters shall take up and pay for (in addition to the Securities they
are obligated to purchase pursuant to Section 1 hereof) the number of
Securities agreed to be purchased by all such defaulting Underwriters on the
Closing Date or Option Closing Date, as the case may be, as hereinafter
provided. Such Securities shall be taken up and paid for by such
non-defaulting Underwriter or Underwriters in such amount or amounts as you
may designate with the consent of each Underwriter so designated or, in the
event no such designation is made, such Securities shall be taken up and paid
for by all non-defaulting Underwriters PRO RATA in proportion to the
aggregate amount of Securities set opposite the names of such non-defaulting
Underwriters in Schedule II.
<PAGE>
-39-
If a new allocation is made in accordance with the foregoing
provision, you shall have the right to postpone the Closing Date or Option
Closing Date, as the case may be, for a period not exceeding five business
days in order that any necessary changes in the Registration Statement and
Prospectus and other documents may be effected.
The term Underwriter as used in this agreement shall refer to and
include any Underwriter substituted under this Section 13 with like effect as
if such substituted Underwriter had originally been named in Schedule II.
If the amount of Securities that all Underwriters so defaulting
shall have agreed but failed to take up and pay for exceeds 10% of the total
number of Securities that the Underwriters are obligated to purchase on the
Closing Date or Option Closing Date, as the case may be, this Agreement
shall terminate without liability on the part of any non-defaulting
Underwriter (provided that if such default occurs with respect to Additional
Securities after the Closing Date, this Agreement will not terminate as to
the Firm Securities).
14. UNITED KINGDOM DISTRIBUTION. Each Representative represents
and agrees that (i) it will not offer or sell any shares of Common Stock to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances that will not involve an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations
1995 ("the Regulations"); (ii) it will comply with all applicable provisions
of the Financial Services Act 1986 and the Regulations with respect to
anything done by it in relation to the shares of Common Stock, in, from or
otherwise involving the United Kingdom and (iii) it will only issue or pass
on to any person in the United Kingdom any document received by it in
connection with the offering of the shares of Common Stock if that person is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1995 or is a person to whom
such document may otherwise lawfully be issued or passed on.
15. INFORMATION SUPPLIED BY THE UNDERWRITERS AND SELLING
STOCKHOLDERS.
(a) The statements set forth in the last paragraph on the front
cover page of the Prospectus relating to the Securities and paragraph four
under the heading "Underwriting" in
<PAGE>
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the Prospectus relating to the Securities (to the extent such statements
relate to the Underwriters) constitute the only information furnished by the
Underwriters to the Company and the Selling Stockholders for the purposes of
Sections 2(b), 10(a) and 10(c) hereof. Each Underwriter confirms that such
statements, to the extent such statements relate to each such Underwriter,
are correct in all material respects.
(b) As to the Selling Stockholder other than Stanley E. Fulton,
the number of shares of Common Stock beneficially owned by such Selling
Stockholders prior to and after the offering of the Securities and footnotes
in Table 1 under the heading "Principal and Selling Stockholders" in the
Prospectus constitute the only information furnished by such Selling
Stockholders to the Company and the Underwriters for the purposes of Section
10(b) hereof. Such Selling Stockholder confirms that such information, to
the extent such statements relate to each Selling Stockholder, is correct in
all material respects.
16. NOTICES. All communications hereunder shall be in writing
and, if sent to the Underwriters, shall be mailed or delivered or telecopied
and confirmed in writing to the Representatives in care of BT Alex. Brown
Incorporated, One Bankers Trust Plaza, 130 Liberty Street, New York, New York
10006, Attention: Corporate Finance Department, and if sent to any Selling
Stockholder, to such Selling Stockholder in care of the Company and if sent
to the Company, shall be mailed, delivered or telegraphed and confirmed in
writing to Anchor Gaming at 815 Pilot Road, Suite G, Las Vegas, Nevada 89119,
Attention: Stanley E. Fulton.
17. SUCCESSORS. This Agreement shall inure to the benefit of and
be binding upon the Underwriters, the Company and the Selling Stockholders
and their respective successors and legal representatives, and nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any other person any legal or equitable right, remedy or claim under or
in respect of this Agreement, or any provisions herein contained. This
Agreement and all conditions and provisions hereof are intended to be and are
for the sole and exclusive benefit of such persons and for the benefit of no
other person except that (i) the indemnities of the Company and the Selling
Stockholders contained in Section 10 of this Agreement shall also be for the
benefit of any person or persons who control the Underwriters within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii)
the indemnities of the Underwriters contained in Section 10 of this Agreement
shall also be for the benefit of the directors of the Company, the Company's
officers
<PAGE>
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who have signed the Registration Statement, the Selling Stockholders and any
person or persons who control the Company or the Selling Stockholders within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No
purchaser of Securities from the Underwriters will be deemed a successor
because of such purchase.
18. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
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If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between
the Company, the Selling Stockholders and the Underwriters.
Very truly yours,
ANCHOR GAMING
By:
-------------------------------
Name:
Title:
SELLING STOCKHOLDERS,
LISTED ON SCHEDULE II
Attorney-in-Fact for
each Selling Stockholder,
By:
-------------------------------
Name:
Attorney-in-Fact
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
BT ALEX. BROWN INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
Acting on behalf of themselves and as
the Representatives of the several
Underwriters named in Schedule II hereto.
By BT ALEX. BROWN INCORPORATED
By
-------------------------------
Name:
Title:
<PAGE>
SCHEDULE I
ANCHOR GAMING
Stock Holdings of Selling Stockholders
Number of
Name/Entity Shares
- ----------- ---------
Stanley E. Fulton 657,700
Elizabeth F. Jones 202,500
Deborah J. Fulton 179,500
Stanley M. Fulton 182,500
Virginia L. Fulton 182,500
Lucinda Fulton Tischer 130,000
Michael B. Fulton 195,300
Elizabeth M. Fulton 70,000
<PAGE>
SCHEDULE II
Number of
Shares to
Underwriter Be Purchased
- ----------- ------------
BT Alex. Brown Incorporated.....................
Morgan Stanley & Co. Incorporated...............
------------
Total Underwriters 1,800,000
------------
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT AND REPORT ON SCHEDULE
To the Board of Directors of
Anchor Gaming and Subsidiaries:
We consent to the use in Pre-Effective Amendment No. 1 to Registration
Statement No. 333-34755 of Anchor Gaming and Subsidiaries (the 'Company') on
Form S-3 of our report dated August 1, 1997, appearing in the Prospectus, which
is a part of this Registration Statement, and to the use of our report dated
August 1, 1996 incorporated by reference in this Form S-3 and to the references
to us under the heading 'Experts' in such Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the consolidated financial statement
schedule of the Company listed in Item 16(b). This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
September 16, 1997
<PAGE>
EXHIBIT 23.3
[LETTERHEAD]
CONSENT OF DANIEL P. BURKE, ESQ.
Hauppauge, New York
Dated: September 16, 1997
As special counsel to the "Company" (Anchor Gaming), I hereby consent to the
reference to myself in the Pre-effective Amendment No. 1 to the Registration
Statement filed on September 17, 1997 with respect to information provided under
the caption "Intellectual Property Rights" in the "Proprietary Games" section of
the "BUSINESS" section, and the section entitled "Risks of Proprietary Games" in
the "RISK FACTORS" section.
/s/ DANIEL P. BURKE
--------------------------------------
Daniel P. Burke
