<PAGE>
As filed with the Securities and Exchange Commission on January 29, 1997
Registration No. 33-71816-LA
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST EFFECTIVE AMENDMENT NO. 4 TO THE
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BOARDWALK CASINO, INC.
(Name of small business issuer in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
7011
(Primary Standard Industrial Classification Code Number)
88-0304201
(I.R.S. Employer Identification No.)
---------------
3750 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NEVADA 89109
(702) 735-2400
(Address and telephone number of principal
executive offices and principal place of business)
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JONES, JONES, CLOSE & BROWN, CHARTERED
3773 HOWARD HUGHES PARKWAY
THIRD FLOOR SOUTH
LAS VEGAS, NEVADA 89109
(702) 734-2220
(Name, address and telephone number of agent for service)
---------------
Copies of all communications to:
ANDREW N. BERNSTEIN, ESQ.
ANDREW N. BERNSTEIN, P.C.
5445 DTC PARKWAY
SUITE 520
GREENWOOD VILLAGE, COLORADO 80111
TELEPHONE: (303) 770-7131
FACSIMILE: (303) 770-7332
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<PAGE>
Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
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. [ ]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
=========================================================================================================
Proposed Proposed
Maximum Maximum
Title of Each Class Offering Aggregate Amount of
Of Securities to be Amount to be Price Per Offering Registration
Registered Registered Share (1) Price (1) Fee
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<S> <C> <C> <C> <C>
Common Stock, $.001 par value per share 1,840,000(2) $5.00 $ 9,200,000 $3,172.44
- ---------------------------------------------------------------------------------------------------------
Redeemable Warrant to purchase one
share of Common Stock ("Warrant") 3,680,000(3) $0.10 $ 368,000 $ 126.90
- ---------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of
the Warrants 3,680,000(4) $5.00 $18,400,000 $6,344.87
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Representative's Option 160,000(5) $ .0006 $ 100 $ .03
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Common Stock issuable upon exercise of
Representative's Option 160,000(6) $7.00 $ 1,120,000 $ 386.21
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Warrants issuable upon exercise of
Representative's Option 320,000(7) $0.14 $ 44,800 $ 15.45
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Common Stock issuable upon exercise of
Warrants included in Representative's
Option 320,000(8) $5.00 $ 1,600,000 $ 551.73
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Common Stock on behalf of Selling
Security Holders 425,000 $5.00 $ 2,125,000 $ 732.76
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Warrants on behalf of Selling Security
Holders 450,000(9) $0.10 $ 45,000 $ 15.52
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<PAGE>
- ---------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of the
Warrants on behalf of Selling Security
Holders 450,000(10) $5.00 $ 2,250,000 $ 775.87
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Total - - $35,152,900 $12,121.78
=========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee.
(2) Includes 240,000 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(3) Includes 480,000 Warrants which the Underwriters have the option to
purchase to cover over-allotments, if any.
(4) Underlying shares of Common Stock issuable upon exercise of Warrants. This
Registration Statement also covers such additional number of shares as may
become issuable upon exercise of the Warrants by reason of anti-dilution
provisions pursuant to Rule 416.
(5) Representative's Option to be sold to the Representative.
(6) Underlying shares of Common Stock issuable upon exercise of
Representative's Option. This Registration Statement also covers such
additional number of shares as may become issuable upon exercise of the
Representative's Option by reason of anti-dilution provisions pursuant to
Rule 416.
(7) Underlying Warrants issuable upon exercise of Representative's Option.
This Registration Statement also covers such additional number of Warrants
as may become issuable upon exercise of the Representative's Option by
reason of anti-dilution provisions pursuant to Rule 416.
(8) Underlying shares of Common Stock issuable upon exercise of Warrants
included in Representative's Option. This Registration Statement also
covers such additional number of shares as may become issuable upon
exercise of the Warrants included in the Representative's Option by reason
of anti-dilution provisions pursuant to Rule 416.
(9) This Registration Statement also covers such additional number of Warrants
as may become issuable to the Selling Security Holders by reason of anti-
dilution provisions pursuant to Rule 416.
(10) Underlying shares of Common Stock issuable upon exercise of Warrants
included on behalf of the Selling Security Holders. This Registration
Statement also covers such additional number of shares as may become
issuable upon exercise of the Warrants registered on behalf of the Selling
Security Holders by reason of anti-dilution provisions pursuant to Rule
416.
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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
3,587,000 COMMON STOCK PURCHASE WARRANTS
AND
3,587,000 SHARES OF COMMON STOCK UPON EXERCISE
OF THE COMMON STOCK PURCHASE WARRANTS
AND
254,000 SHARES OF COMMON STOCK
BOARDWALK CASINO, INC.
As a part of the initial public offering of Boardwalk Casino, Inc. (the
"Company") completed in February 1994, the Company registered with the
Securities and Exchange Commission (the "Commission") and sold 1,840,000 shares
of Common Stock, $.001 par value, of the Company (the "Common Stock") and
3,680,000 Redeemable Common Stock Purchase Warrants (the "Warrants"). In
addition, the Company registered 425,000 shares of Common Stock and 450,000
Warrants (and the 450,000 shares of Common Stock issuable upon exercise of the
450,000 Warrants) for possible sale from time to time on behalf of certain
shareholders. Each Warrant entitles the holder thereof to purchase, at a price
of $5.00, one share of Common Stock at any time until February 11, 1998. The
Warrants are subject to redemption by the Company at $.001 per Warrant at any
time on 60 days' prior written notice, provided that the closing bid quotation
for the Common Stock on the Nasdaq Stock Market is at least $10.00 for twenty
consecutive trading days ending three days prior to the notice of redemption.
As of January 27, 1997, 3,587,000 Warrants were outstanding. See "Description
of Securities."
In addition to the foregoing 3,587,000 Warrants and 3,587,000 shares of
Common Stock, this Prospectus may be used by certain shareholders in connection
with their possible sale of up to 254,000 shares of Common Stock from time to
time. The Company will not receive any proceeds from such sales. See "Selling
Security Holders."
No minimum number of Warrants must be exercised and all funds received by
the Company upon exercise of the Warrants will be used for general corporate
purposes.
FOR INFORMATION CONCERNING CERTAIN RISKS RELATING TO THIS OFFERING, SEE
"RISK FACTORS."
The Common Stock and the Warrants are traded on the Nasdaq SmallCap Market
under the symbols "BWLK" and "BWLKW," respectively. On January 24, 1997, the
last sale prices for the Common Stock and the Warrants, respectively, were $5.50
per share and $1.88 per Warrant.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NEITHER THE NEVADA GAMING COMMISSION NOR THE NEVADA STATE GAMING CONTROL
BOARD 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.
BOARDWALK CASINO, INC.
3750 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NEVADA 89109
The date of this Prospectus is _______, 1997.
<PAGE>
ADDITIONAL INFORMATION
With respect to the securities offered hereby, the Company has filed with
the Commission a post-effective amendment to the Registration Statement on Form
SB-2 under the Securities Act of 1933, as amended (the "Securities Act"). For
the purposes hereof, the term "Registration Statement" means the original
Registration Statement and any and all amendments thereto. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto, to which reference hereby is made. Each statement made in
this Prospectus concerning a document filed as an exhibit to the Registration
Statement is not necessarily complete and is qualified in its entirety by
reference to such exhibit for a complete statement of its provisions. Any
interested party may inspect the Registration Statement and its exhibits,
without charge, at the public reference facilities of the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at its regional offices at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and
at 7 World Trade Center, Suite 1300, New York, New York 10048. Any interested
party may obtain copies of all or any portion of the Registration Statement and
its exhibits at prescribed rates from the Public Reference Section of the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. The Commission maintains a World Wide Web
site on the Internet at http://www.sec.gov that contains reports, proxy and
information statements, registration statements and other information filed
electronically with the Commission.
The Company is a reporting company subject to certain informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and files reports and other information with the Commission. The reports
and other information filed by the Company may be inspected and copied at the
public reference facilities of the Commission in Washington, D.C. and at its
regional offices set forth above, and copies of such material can be obtained
from the Public Reference Section of the Commission, Washington, D.C. 20549 at
prescribed rates. In addition, the Company's securities are listed on the
Pacific Stock Exchange and such reports and other information concerning the
Company can be inspected at such exchange.
The Company furnishes its stockholders with annual reports containing
financial statements audited by independent certified public accountants.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS AS OF THE DATE HEREOF UNLESS OTHERWISE INDICATED
AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Boardwalk Casino, Inc. (the "Company") is a Nevada corporation that owns
and operates the Holiday Inn-Registered Trademark- Casino Boardwalk in Las
Vegas, Nevada and leases the 1.07 acre shopping center next to the hotel-casino.
The Holiday Inn-Registered Trademark- Casino Boardwalk is situated on a 7.8-acre
site on the Las Vegas Strip between Flamingo Road and Tropicana Avenue. It
includes 653 hotel rooms, approximately 33,000 square feet of casino space, a
coffee shop, a full-service restaurant, a snack bar, an entertainment lounge,
two bars, two outdoor swimming pools and 1,125 garage and surface parking spaces
(including those spaces acquired with the shopping center lease). It also
contains a small gift shop under lease to Holiday Gifts, Inc., a Nevada
corporation owned by Avis P. Jansen, the Chairman of the Board of Directors and
a principal shareholder of the Company. The Company has recently completed a
substantial hotel and casino renovation and expansion program.
Boardwalk Casino, Inc. was incorporated under the laws of the State of
Nevada on July 27, 1993; Holiday Gifts, Inc. was incorporated under the laws of
the State of Nevada on December 23, 1971. The Company's principal executive
office is located at 3750 Las Vegas Boulevard South, Las Vegas, Nevada 89109 and
its telephone number is (702) 735-2400.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by the Company. . . . . 3,587,000 Warrants and 3,587,000 shares
underlying the Warrants. Each Warrant is
exercisable to purchase one share of Common
Stock at any time until February 11, 1998 at
a price of $5.00 and is redeemable by the
Company at $.001 per Warrant under certain
conditions. See "Description of
Securities."
Securities Offered by Selling Security
Holders. . . . . . . . . . . . . . . . . 254,000 shares of Common Stock and 108,000
Warrants (and the 108,000 shares of Common
Stock issuable upon exercise of the 108,000
Warrants). See "Selling Security Holders."
Use of Proceeds. . . . . . . . . . . . . . The Company will not receive any proceeds
from the sale of securities by the Selling
Security Holders. All funds received by the
Company upon the exercise of the Warrants
will be used for general corporate purposes.
Common Stock Outstanding . . . . . . . . . 7,179,429 shares
3
<PAGE>
Nasdaq SmallCap Market Symbols
Common Stock. . . . . . . . . . . . . BWLK
Warrants. . . . . . . . . . . . . . . BWLKW
Pacific Stock Exchange Symbols
Common Stock. . . . . . . . . . . . . BWK
Warrants. . . . . . . . . . . . . . . BWKW
</TABLE>
RISK FACTORS
For a discussion of certain risk factors affecting the Company, including
government regulation and competition, see "Risk Factors."
--------------------
Unless otherwise indicated, information in this Prospectus assumes no
exercise of (i) the 3,587,000 Warrants, (ii) outstanding stock options to
purchase up to 850,000 shares of Common Stock, (iii) the Representative's Option
and (iv) outstanding common stock purchase warrants exercisable to purchase an
aggregate of 2,183,692 shares of Common Stock.
--------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Prospectus and other materials filed or to be filed by the Company with the
Commission (as well as information included in oral statements or other written
statements made or to be made by the Company) contains statements that are
forward-looking, such as statements relating to plans for future expansion and
other business development activities as well as other capital spending,
financing sources and the effects of regulation (including gaming and tax
regulation) and competition. Such forward-looking information involves
important risks and uncertainties that could significantly affect anticipated
results in the future and, accordingly, such results may differ from those
expressed in any forward-looking statements made by or on behalf of the Company.
These risks and uncertainties include, but are not limited to, those relating to
development and construction activities, dependence on existing management, debt
service (including sensitivity to fluctuations in interest rates), domestic or
global economic conditions, changes in federal or state tax laws or the
administration of such laws and changes in gaming laws or regulations (including
the legalization of gaming in certain jurisdictions).
4
<PAGE>
RISK FACTORS
The securities of the Company being offered by this Prospectus involve a
high degree of risk. Prior to investing in the securities, prospective
investors should consider carefully the following risks and other investment
factors, together with other information in this Prospectus.
WORKING CAPITAL DEFICIT AND NET LOSSES
At September 30, 1996, the Company's current liabilities exceeded its
current assets by approximately $1,255,988. In addition, the Company has
experienced net losses for the fiscal year ended September 30, 1996 and 1995 of
$4,413,794 and $5,336,826, respectively. See "Management's Discussion and
Analysis or Plan of Operation."
As of September 24, 1996, the Company entered into a private financing with
Diversified Opportunities Group Ltd., a company controlled by Jacobs
Entertainment Ltd. ("Diversified"), pursuant to which: (i) the Company issued
and sold to Diversified 571,429 shares of Common Stock at a price of $7.00 per
share for a total purchase price of $4 million; (ii) the Company issued and sold
to Diversified a convertible subordinated note in the principal amount of $5
million. The note provides for a variable interest rate of LIBOR plus 2% and
interest thereon is payable on a quarterly basis. The principal of the note is
due and payable in September 1998. Subject to approval of the Nevada Gaming
Authorities, the note is convertible into shares of Common Stock at a conversion
price of $7.50 per share; and (iii) Diversified purchased an additional 500,000
shares of Common Stock privately from The Jansen Trust. The proceeds of the
debt and equity transactions were applied by the Company to retire certain
short-term indebtedness and to enhance its working capital. See "Business -
Private Financing with Diversified Opportunities Group Ltd."
COMPETITION
There is intense competition among companies in the gaming industry, many
of which have significantly greater financial resources than the Company. The
Holiday Inn-Registered Trademark- Casino Boardwalk faces competition from all
other casinos and hotels in the Las Vegas area. Hotel room inventory in Las
Vegas has expanded significantly in the recent past, further increasing
competition. Indirectly and to a lesser extent, the Company's operations
compete generally with gaming operations in other parts of the State of Nevada,
such as Reno, Laughlin and Lake Tahoe, with facilities in Atlantic City, New
Jersey and other parts of the world and with state-sponsored lotteries, on-and
off-track wagering, card parlors, riverboat and Native American gaming ventures
and other forms of legalized gambling. Certain states have recently legalized,
and several other states are currently considering legalizing, casino gaming in
designated areas. Legalized casino gaming in other states and on Native
American reservations represents additional competition to the Company and could
adversely affect the Company's operations, particularly if such gaming were to
occur in areas close to the Company's operations. See "Competition."
INDEBTEDNESS AND ABILITY TO SERVICE DEBT
As a result of its private placement of $40 Million First Mortgage Notes in
April 1995 (the "First Mortgage Notes") and $5 Million Convertible Subordinated
Note in September 1996 (collectively, the "Notes"), the Company's level of
indebtedness could have important consequences to holders of the Common Stock,
including the following: (i) if the Company is unable to sustain its current
level of operations or if the Company suffers adverse operating results, the
Company could prove unable to service
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<PAGE>
such level of indebtedness; (ii) a substantial portion of the Company's cash
flow from operations may be dedicated to the payment of principal and
interest on its indebtedness and would not be available for other purposes;
(iii) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures or acquisitions may be limited; and
(iv) the Company's level of indebtedness could limit its flexibility in
planning for, or reacting to, changes in the gaming industry. See "Business
- - $40 Million First Mortgage Notes Offering" and "Business - Private
Financing with Diversified Opportunities Group Ltd."
Based upon the Company's current level of operations and anticipated growth
as a result of its business strategy, the Company expects that cash flow from
operations and additional financings in the future will be sufficient to enable
the Company to satisfy its anticipated requirements for operating expenses,
capital expenditures and financing activities, excluding interest and principal
payments on the Notes. If the Company is unable to satisfy such requirements
from these sources, the Company could be required to adopt one or more
alternatives, such as reducing or delaying capital expenditures, refinancing or
restructuring its indebtedness, selling material assets or operations or seeking
additional capital contributions. There can be no assurance that any of such
actions could be effected on satisfactory terms that would enable the Company to
continue to satisfy the Company's capital requirements or that would be
permitted under the terms of the Indenture or any other debt instruments to
which the Company may then be subject. See "Management's Discussion and
Analysis or Plan of Operation" and Note 3 to the Financial Statements.
SINGLE SOURCE OF REVENUE
The Company is currently dependent upon the results of its single gaming
casino and is consequently subject to greater risks, including risks related to
natural disasters and local competitive conditions, than a more geographically
diversified casino operation.
REGULATORY RESTRICTIONS UPON REMEDIES
In the event of a foreclosure sale of the Company's casino under the deed
of trust granted by the Company, Nevada gaming laws and regulations will require
the purchaser or operator of the casino to be licensed under such laws and
regulations, and if the trustee is unable, or chooses not, to sell the casino,
the trustee would be required to retain an entity licensed under the Nevada
gaming laws and regulations to conduct gaming operations at the casino. These
licensing requirements of the Nevada Gaming Authorities may limit the number of
potential bidders for the casino and may delay the sale thereof, either of which
could adversely affect the sales price of the casino in the event of a
foreclosure.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S FIRST MORTGAGE NOTES
The terms of the Indenture governing the First Mortgage Notes include
significant restrictive financial and operating covenants. The ability of the
Company to make payments of principal and interest on its indebtedness and to
comply with the restrictive covenants is dependent upon its future business
performance, which is subject to financial, economic, competitive, regulatory
and other factors, many of which are beyond the Company's control. Failure to
comply with such covenants could lead to an acceleration of such indebtedness.
In such a case, there can be no assurance that the Company would have sufficient
resources to repay the principal and interest on the First Mortgage Notes. In
addition, the First Mortgage Notes are secured by, among other things, a first
mortgage on the casino and hotel and related assets. If an Event of Default (as
defined) occurs with respect to the First Mortgage Notes, there can be
6
<PAGE>
no assurance that the liquidation of the collateral securing the First
Mortgage Notes would produce proceeds in an amount sufficient to pay the
principal of or accrued interest on the First Mortgage Notes.
ADDITIONAL FINANCING
Future expansion of the Company's gaming activities may require substantial
amounts of capital. However, the availability of additional financing may
affect the Company's ability to further expand its current facilities. There
can be no assurance that funds for such expansions, whether from equity or debt
financings or other sources, will be available or, if available, will be on
terms satisfactory to the Company. See "Management's Discussion and Analysis or
Plan of Operation" and Note 3 to the Financial Statements.
GENERAL ECONOMIC RISKS
The Company's current and future business plan is dependent, in large part,
on the state of the gaming industry. Adverse changes in general and local
economic conditions may adversely impact investments in gaming enterprises.
These conditions and other factors beyond the Company's control include: (i) the
ability of the Company to operate the casino; (ii) competition from other
hospitality and entertainment properties; (iii) changes in regional and local
population and disposable income composition; (iv) the need for renovations,
refurbishment and improvements; (v) unanticipated increases in operating costs;
(vi) changes in federal, state, local and Indian tribal laws, rules and
regulations; (vii) legal restrictions as to the use of signs, billboards and
other forms of road sign advertising typically utilized in marketing gaming
operations; (viii) restrictive changes in zoning and similar land use laws and
regulations or in health, safety and environmental laws, rules and regulations;
(ix) the inability to secure property and liability insurance to fully protect
against all losses, or to obtain such insurance at reasonable costs; (x) the
exercise of the power of eminent domain; (xi) seasonality; (xii) changes or
cancellation in local tourist, athletic or cultural events; and (xiii) changes
in travel patterns or preferences, among other factors.
GAMING REGULATION
The ownership and operation of a gaming casino is subject to extensive
federal, state and local regulations. The State of Nevada and the applicable
local authorities require various licenses, permits and approvals to be held by
the Company. The Nevada Gaming Commission may, among other things, revoke the
license of any entity licensed as a gaming corporation or the registration of
any entity registered as a holding company of a gaming corporation and may also
revoke the license of any individual licensed as an officer, director, control
person or stockholder of a licensed or registered entity. To date, the Company
has obtained all government licenses, permits and approvals necessary for the
operation of its gaming activities, including the licensing of all stockholders,
officers, directors and employees for whom licensing is required, and the
Company intends to apply for any licenses and approvals that may be required in
the future. However, gaming licenses and related approvals are deemed to be
privileges under Nevada law, and no assurances can be given that any new
licenses, permits or approvals that may be required in the future will be given
or that existing ones will not be revoked. Denial or revocation of any such
license in the future could (and revocation of the Company's license would) have
a material adverse effect on the Company.
The Company may not make a public offering of its securities without the
approval of the Nevada Gaming Commission if the securities or proceeds therefrom
are intended to be used to construct, acquire or finance gaming facilities in
Nevada, or retire or extend obligations incurred for such purposes. Such
7
<PAGE>
approval, if given, will not constitute a recommendation or approval of the
investment merits of the securities. The Company has obtained such approval of
this Offering.
Any beneficial holder of the securities (including the Warrants) of the
Company may be subject to investigation by the Nevada Gaming Commission if the
Nevada Gaming Commission has reason to believe that such ownership may be
inconsistent with the 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 established by Nevada
law and the regulations of the Nevada Gaming Commission. In addition, changes
in control of the Company may not occur without the prior approval of the Nevada
Gaming Commission. See "Regulation and Licensing."
CONTROL BY PRINCIPAL STOCKHOLDER
Avis P. Jansen, the Chairman of the Board of Directors of the Company,
beneficially owns approximately 38.3% of the outstanding shares of Common Stock.
As a result, she will likely be able to control the affairs of the Company,
including the election of directors and, except as otherwise provided by law,
other matters submitted to a vote of stockholders, including a merger,
consolidation or sale of the Common Stock, and other matters regarding the
Company. See "Principal Stockholders."
POSSIBLE EFFECTS OF CERTAIN ARTICLES OF INCORPORATION AND BYLAW PROVISIONS
The Company's Articles of Incorporation and Bylaws contain provisions that
may discourage acquisition bids for the Company. The Company has substantial
authorized but unissued capital stock available for issuance. The Company's
Articles of Incorporation contain provisions which authorize the Board of
Directors, without the consent of stockholders, to issue additional shares of
Common Stock and issue shares of Preferred Stock in series, including
establishment of the voting powers, designations, preferences, limitations,
restrictions and relative rights of each series of Preferred Stock.
Additionally, the Company's Bylaws grant authority to the Board to amend the
Company's Bylaws and empower the Board to increase or decrease the number of
directors and specify that directors will generally hold office until the next
annual meeting of stockholders. These provisions may have the effect, either
alone or in combination with each other, of (i) limiting the price that certain
investors might be willing to pay in the future for the Common Stock or the
Warrants, (ii) delaying, deferring or otherwise discouraging an acquisition or
change in control of the Company deemed undesirable by the Board of Directors or
(iii) adversely affecting the voting power of stockholders who own Common Stock.
See "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE
Excluding the 753,840 shares of Common Stock recently acquired by
Diversified, all of the Company's issued and outstanding shares of Common Stock
have either been registered for resale or issued pursuant to a registration
statement or have been held for over three years and are, therefore, currently
available for immediate sale, subject to compliance with Rule 144 by executive
officers and directors of the Company. In addition, the Company has granted
Diversified certain demand registration rights covering its 753,840 shares of
Common Stock. Any future sales of substantial amounts of Common Stock in the
open market or the availability of such shares could adversely affect the market
for the Common Stock. See "Shares Eligible For Future Sale" and "Selling
Security Holders."
8
<PAGE>
ABSENCE OF CASH DIVIDENDS
The Board of Directors does not anticipate paying cash dividends on the
Common Stock for the foreseeable future and intends to retain any future
earnings to finance the growth of the Company's business. Payment of dividends,
if any, will depend, among other factors, on earnings, capital requirements and
the general operating and financial condition of the Company. See "Dividend
Policy."
RISK OF REDEMPTION OF WARRANTS
The Company may redeem the Warrants for $0.001 per Warrant at any time
after the closing bid quotation of the Common Stock on the Nasdaq Stock Market
shall have been at least $10.00 for 20 consecutive trading days ending three
days prior to the notice of redemption. Notice of redemption of the Warrants
could cause the holders thereof to exercise the Warrants and pay the exercise
price at a time when it may be disadvantageous for the holders to do so, to sell
the Warrants at the current market price when they might otherwise wish to hold
the Warrants, or to accept the redemption price, which is likely to be less than
the market value of the Warrants at the time of the redemption. See
"Description of Securities."
INVESTORS MAY BE UNABLE TO EXERCISE WARRANTS
For the life of the Warrants, the Company will attempt to maintain a
current effective registration statement with the Commission relating to the
shares of Common Stock issuable upon exercise of the Warrants. If the Company
is unable to maintain a current registration statement because the costs render
it uneconomical, or because the value of the shares of Common Stock underlying
the Warrants is less than the exercise price, or any number of other reasons,
the Warrant holders will be unable to exercise the Warrants and the Warrants may
become valueless. A purchaser of the Warrants in the open market may reside in
a jurisdiction in which the shares of Common Stock underlying the Warrants are
not registered or qualified. If the Company is unable or chooses not to
register or qualify or maintain the registration or qualification of the shares
of Common Stock underlying the Warrants for sale in all of the states in which
the Warrant holders reside, the Company would not permit such Warrants to be
exercised and Warrant holders in those states may have no choice but to either
sell their Warrants or let them expire. Prospective investors and other
interested persons who wish to know whether or not the Common Stock may be
issued upon the exercise of Warrants by a Warrant holder in a particular state
should consult with the securities department of the state in question or send a
written inquiry to the Company.
USE OF PROCEEDS
The Company presently anticipates that the proceeds from the exercise of
the Warrants will be applied and allocated to the working capital of the Company
for general corporate purposes. Pending such uses, the Company may invest the
net proceeds in short-term investment grade interest-bearing securities.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock and does not
presently anticipate paying dividends in the foreseeable future. The Company
currently intends to retain all of its earnings from operations for use in
expanding and developing its business. Any future decision as to the payment of
dividends will be at the discretion of the Company's Board of Directors and will
depend upon the Company's earnings, financial position, capital requirements and
such other factors as the Board of Directors deems relevant. Further, the
Indenture between the Company as Issuer and Shawmut Bank,
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N.A. as Trustee for $40,000,000 16.5% First Mortgage Notes Due March 31,
2005, Dated as of April 7, 1995 and the note issued to Diversified
Opportunities Group Ltd. contain significant limitations on the Company's
ability to pay dividends on its capital stock.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded in the over-the-counter market and is quoted on
the Nasdaq SmallCap Market under the symbol "BWLK" and on the Pacific Stock
Exchange under the symbol "BWK". For the past two fiscal years, the high and
low bid prices of the Common Stock as reported to the Company by the National
Association of Securities Dealers, Inc. were as follows:
FYE 1996 QUARTER ENDED: HIGH LOW
December 31, 1995 6 5/8 5 1/4
March 31, 1996 8 1/2 5 3/4
June 30, 1996 8 9/16 7 1/2
September 30, 1996 6 5/8 5 3/4
FYE 1995 QUARTER ENDED: HIGH LOW
December 31, 1994 6 5 1/4
March 31, 1995 5 5/8 5 1/4
June 30, 1995 8 5/8 7 1/2
September 30, 1995 8 5/8 7 3/8
The over-the-counter quotations set forth herein reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
The Warrants are traded in the over-the-counter market and are quoted on
the Nasdaq SmallCap Market under the symbol "BWLKW" and on the Pacific Stock
Exchange under the symbol "BWKW."
On January 24, 1997, the last sale price of the Common Stock as reported by
Nasdaq was $5.50 per share. As of January 27, 1997, there were at least 1,900
record and beneficial holders of the Common Stock.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
Boardwalk Casino, Inc. ("BCI" or the "Company") was formed in July 1993 for
the purpose of operating a casino and a hotel in Las Vegas, Nevada. See "Notes
to Financial Statements".
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
REVENUES:
Casino............................... $16,897,527 $ 2,128,345
Rooms................................ 7,224,324 2,824,534
Food and beverage.................... 4,031,278 1,513,466
Other................................ 837,895 138,607
----------- -----------
Gross revenues..................... 28,991,024 6,604,952
Promotional allowances............... (1,079,467) (280,502)
----------- -----------
27,911,557 6,324,450
COSTS AND EXPENSES:
Casino............................... 10,787,868 2,415,562
Rooms................................ 3,460,334 1,675,696
Food and beverage.................... 4,168,259 1,745,572
Other................................ 173,138 64,032
Selling, general and administrative.. 5,174,502 2,209,374
Depreciation and amortization........ 2,525,044 840,168
----------- -----------
26,289,145 8,950,404
----------- -----------
Income (loss) from operations.......... 1,622,412 (2,625,954)
----------- -----------
OTHER (INCOME) EXPENSE:
Interest income...................... (395,416) (653,740)
Interest expense..................... 7,874,115 3,463,556
Interest capitalized................. (1,442,493) (1,243,558)
Loss on disposal of fixed assets..... - 1,100,585
----------- -----------
6,036,206 2,666,843
----------- -----------
Income (loss) before income taxes &
extraordinary item................... $(4,413,794) $(5,292,797)
----------- -----------
----------- -----------
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RESULTS OF OPERATIONS
The Company is engaged in a three-phase project to expand and renovate the
former existing hotel and casino facilities (the "Expansion"). Phase one of
the Expansion was completed in May 1994 which was the renovation of the original
202 existing hotel rooms.
Phase two of the Expansion was completed in September 1995 with the
completion of a new casino facility that increased floor space from 15,000
square feet to 33,000 square feet.
The third phase of the Expansion consisted of development and construction
of a new 16-story (451 room) hotel tower, the completion of the 27,000 square
foot buffet and meeting rooms on the second floor of the casino, the completion
of 4,500 square feet of meeting room space on the first floor of the tower,
entertainment lounge and the construction of two parking garages as more fully
described below.
The hotel tower was opened in stages under a temporary certificate of
occupancy permit with an additional 128 rooms on February 23, 1996 added to the
existing 202 rooms. Additional rooms were added every few weeks through May 3,
1996 totaling 642 rooms. The remaining 16th floor, comprised of 11 suites, was
available for occupancy by late July 1996.
On December 22, 1995, the first of two parking garages, consisting of 550
spaces, was available for complete use. The second garage, consisting of 440
spaces, was available for complete use on May 3, 1996.
On November 28, 1995, the 105 seat Lighthouse Lounge opened starring "The
Unknown Comic" and additional entertainment throughout the year.
Phase three of the Expansion was substantially completed, excluding the
buffet and meeting rooms on the first and second floors, which are currently
under construction. Of the total estimated cost to complete the buffet and
meeting rooms, the Company has expended approximately $4,171,000 as of September
30, 1996, leaving an unexpended balance of approximately $3,600,000. The
balance of the construction will be financed using existing cash, operating cash
flow and cash available from other sources as more fully described in "Liquidity
and Capital Resources."
YEAR ENDED SEPTEMBER 30, 1996 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1995
The results of operations for the year ended September 30, 1996 reflect the
revenues and costs associated with the new casino facility open for the entire
year and the additional 451 rooms for approximately one half of the year.
The Company incurred a net loss in the year ended September 30, 1996 of
$4,413,794 compared to a net loss of $5,336,826 in the prior year, a decrease in
the net loss of $923,032 (17.3%). The decrease in loss was attributable to a
$4,248,366 (161.8%) increase in income from operations, to an operating profit
of $1,622,412 in 1996 from an operating loss of $2,625,954 in 1995 which was
offset by an increase in net other expenses and income of $3,369,363.
Net revenues at BCI increased $21,587,107 (341.3%), to $27,911,557 in 1996
from $6,324,450 in 1995. The increase in revenues for fiscal 1996 was
attributable to the following: (i) an increase of $14,769,182 in casino revenues
due to the opening of the new casino which included the opening of a new race
and sports book, (ii) $4,399,790 in additional room revenue due to the
completion during the year of the new hotel tower, (iii) an increase in food and
beverage revenues of $2,517,812 due to increased facilities and a greater number
of patrons, (iv) an increase in other revenues by $699,288 and (v) offset by the
increase in promotional allowances of $798,965. Operating expenses, including
depreciation and amortization, increased $17,338,741 (193.7%) to $26,289,145 in
1996 from $8,950,404 in the prior year. The increase in operating expenses
was due primarily to the addition of a new casino facility and start-up and
increased operating costs of the new hotel tower.
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CASINO OPERATIONS
For fiscal 1996, casino revenues increased $14,769,182 or 693.9% to
$16,897,527. The increase is attributable to (i) a $7,164,793 increase in
revenue from the race and sports books to $7,150,487 in fiscal 1996 from a loss
of $14,306 for the same period in 1995, (ii) a $5,662,847 increase in slot
machine revenues to $7,401,869 in fiscal 1996 from $1,739,022 for the same
period in 1995 and (iii) a $1,941,542 increase in revenue from table games to
$2,345,171 in fiscal 1996 from $403,629 for the same period in 1995.
Casino expenses increased $8,372,306 (346.6%) to $10,787,868 for fiscal
year 1996 from $2,415,562 for the same period of 1995. The increase in casino
expenses was due to: (i) a new race and sports department which was open for the
entire year with $4,675,063 in additional expense, (ii) the increased number of
table games resulted in increased wages, benefits and taxes of $1,085,504, (iii)
the additional slot machines and table games increased gaming taxes and
participation expenses by $1,157,659 (iv) the cost of providing complimentary
services increased $663,935, (v) the number of casino and cage personnel was
increased to service the additional slot machine patrons at an additional cost
of $469,181 and (vi) a new promotions department was added at a cost of
$228,423.
ROOM OPERATIONS
Room revenues increased $4,399,790, or 155.8%, to $7,224,324 for fiscal
1996 from $2,824,534 for the comparable 1995 period. The increase in room
revenues reflects an increase in room nights sold by 77,431, or 176.2%, to
121,386 for fiscal 1996 from 43,955 for the comparable 1995 period. This
increase was partially offset by a decrease in the average daily room rate by
$4.74 to $59.52 for fiscal 1996 from $64.26 for the same period of 1995. Fiscal
year 1996 had an additional 85,438 room nights available for rental compared to
fiscal year 1995. These additional rooms available during 1996 over 1995 was
due to the hotel tower opening in stages with the first 128 additional rooms on
February 23, 1996 which added to the existing 202 rooms. Additional rooms were
added every few weeks through May 3, 1996 bringing the total to 642 rooms. The
16th floor, which is comprised of 11 suites, was available for occupancy by
late July 1996. During the year the Company had retained a professional sales
department which had opened several corporate accounts, including a national
airline for its flight crews. Despite the 85,438 additional room nights
available, the hotel occupancy percentage increased 27.3% to 76.4% for the
fiscal year 1996 compared to 60% for fiscal 1995.
Rooms expense increased $1,784,638, or 106.5%, for fiscal 1996 to
$3,460,334 from $1,675,696 for the same period in 1995. This increase is
primarily attributable to (i) an increase in personnel to service the new hotel
tower at a cost of $1,141,238, (ii) additional franchise fees and travel agent
commissions on the additional revenues totaled $433,574, (iii) additional linen,
laundry and room supplies totaled $221,688 and (iv) and additional credit card
fees, uniforms, 800 phone lines and maintenance and repair costs.
FOOD AND BEVERAGE OPERATIONS
Food and beverage revenues increased by $2,517,812 (166.4%), to $4,031,278
for fiscal 1996 from $1,513,466 for the comparable 1995 period. The increase
is primarily a result of the new casino facility which had a full year of
operations during fiscal 1996, as well as the opening of the new hotel tower
which had approximately six months of operations during fiscal 1996.
Food and beverage expenses increased $2,422,687 (138.8%), to $4,168,259
for fiscal 1996 from $1,745,572 for 1995 reflecting increases in food and
beverage costs associated with the increased sales.
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Food and beverage expenses as a percentage of gross food and beverage revenues
decreased to 103.4% for fiscal 1996 from 115.3% for fiscal year 1995. This
decrease is a result of increased casino promotional activity with an increase
in food and beverage served on a complimentary basis, which food and beverage
costs are included in casino expense.
OTHER OPERATING REVENUES AND EXPENSES
Other revenues increased by $699,288 (504.5%) to $837,895 for fiscal 1996
compared to $138,607 for 1995. The increase was attributable to (i) an increase
of $238,285 in rental income due to the new retail facilities, (ii) an increase
of $226,894 in telephone and movie revenues and (iii) the balance of the
increased revenues from arcade and vending facilities.
The other costs increased $109,106 (170.4%) to $173,138 in fiscal 1996
compared to $64,032 in fiscal 1995. The increase is due primarily to the
additional costs of long-distance service and increased cost of movies
purchased.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization totaled $2,525,044 in 1996, reflecting a
$1,684,876 (200.5%) increase over the 1995 amount of $840,168. The increase was
due to the following: (i) a new casino facility was opened in September 1995 at
a cost of $10,897,881, (ii) a new hotel tower was placed in service May 1996 at
a cost of $19,893,988, (iii) two new parking facilities were completed during
the fiscal year at a cost of $6,268,874, (iv) a central plant was completed
September 1995 at a cost of $1,825,842 and (v) additional gaming devices and
casino equipment at a cost of $3,321,176 were placed in service starting in
September 1995 through fiscal year 1996.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased $2,965,128 (134.2%)
to $5,174,502 in 1996 from $2,209,374 in 1995. The increase in administrative
expenses were due to (i) increase in administrative staffing costs of
$1,551,137, (ii) utilities increased $535,604, (iii) facility maintenance and
operating costs increased $335,991, (iv) advertising expenses increased $195,007
and (v) business insurance increased $152,506 due to the increased facilities.
OTHER (INCOME) EXPENSE AND EXTRAORDINARY ITEM
In 1996, the Company received $395,416 in interest income as compared to
$653,740 in 1995. The $258,324 (39.5%) decrease is attributable to the lower
invested balance of marketable securities in the 1996 period.
Interest expense increased to $7,874,115 in 1996 from $3,463,556 in 1995
(an increase of $4,410,559 or 127.3%). The increase was the result of
additional borrowing and a full year of interest expense on the BCI Notes in
1996 compared to approximately six months of interest cost on the BCI Notes
in 1995. Approximately $1,442,493 of interest was capitalized in 1996 in
connection with the Expansion compared to $1,243,558 of interest that was
capitalized in 1995.
During 1995 as part of the Expansion, the Company disposed of certain
property and equipment resulting in a loss on disposal of fixed assets of
approximately $1,101,000.
The Company extinguished certain indebtedness during 1995, resulting in a
net extraordinary loss on early extinguishment of $44,029, comprised of (i) a
loss on the extinguishment of the Company's
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12% promissory notes due August 1995, of $64,153; (ii) a loss on indebtedness
repaid with the proceeds of the BCI Notes of $60,827; and (iii) a gain on the
early settlement of a capital lease obligation in the amount of $80,951.
LIQUIDITY AND CAPITAL RESOURCES
In June of 1996, the Company completed a private placement equity
offering in which it sold 15 units (each unit consisting of 10,000 shares of
common stock and 5,000 warrants). The private placement generated net
proceeds of $956,250.
In September 1996, the Company executed a $5,000,000 subordinated,
convertible promissory note. Interest is payable quarterly at the applicable
Eurodollar rate plus 2% with principal due September 23, 1998 if not converted
by the noteholder. Prior to payment in full by the Company and subject to
regulatory approval, the noteholder may convert the unpaid principal balance
of the note into common shares of the Company. The number of shares into
which the note may be converted shall be determined by dividing the unpaid
principal balance by $7.50.
In September 1996, the Company completed a private placement offering of
571,429 shares of its common stock at a selling price of $7.00 per share. The
Company received net proceeds of $3,735,195 for the stock, after deducting
offering expenses.
The net loss for fiscal 1996 of $4,414,000 and the reduction of
construction related accounts payable resulted in a negative cash flow of
approximately $2,728,000 from operating activities. Although the net loss for
the year ended September 30, 1995 was $5,337,000, the Company had generated a
positive cash flow of approximately $500,000, which was due to the accruing of
interest payable on September 30, 1995 of $2,599,668 on the $40,000,000
private placement, which was subsequently paid during fiscal year 1996.
Investing activities for fiscal 1996 used approximately $3,425,000, which
was comprised of approximately $21,210,000 expended for the construction and
furnishing of a 16-story 451 room hotel tower and the second parking garage
and restricted cash of approximately $18,000,000 was used to meet the
expansion obligations.
Financing activities provided approximately $14,641,000 from additional
borrowings as well as the issuance of common stock and the exercise of
warrants during the year. Such proceeds were offset by $7,366,000 of
principal payments on long-term debt notes payable and capital leases during
fiscal 1996.
The Company had unrestricted cash assets of $4,772,549 (7.6% of total
assets) at September 30, 1996 compared to $3,650,236 (6.3% of total assets) at
September 30, 1995. The ratio of current assets to current liabilities was
.82 to 1 at September 30, 1996 and .52 to 1 September 30, 1995.
With the completion of the new hotel tower and expanded casino,
restaurant, buffet and meeting rooms opened and the presence of its neighbors
(Monte Carlo - June 21, 1996 and New York, New York, - January 3, 1997),
management expects to generate cash flows from operations to improve on its
working capital position in fiscal 1997.
The Company has also arranged for up to $4,000,000 of available working
capital borrowings which has been made available by a director and a group of
other private investors who have provided other short-term financing to the
Company in the past. Such uncollateralized borrowings are available to
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the Company on an as-needed basis through December 31, 1997 on terms
substantially similar to those which had been available to the Company during
1996.
Management believes that the combination of expected cash flows from
operations in 1997, and the proceeds from the private placement transactions
are sufficient to meet the Company's obligations as they become due during
fiscal 1997. The outstanding warrants to purchase common stock at September
30, 1996 also represent a potential significant source of capital to the
Company, although management cannot control or accurately predict the timing
of proceeds fro m the exercise of warrants.
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BUSINESS
GENERAL
Boardwalk Casino, Inc. (the "Company") is a Nevada corporation that owns
and operates the Holiday Inn-Registered Trademark- Casino Boardwalk in Las
Vegas, Nevada and leases the 1.07 acre shopping center next to the
hotel-casino. The Holiday Inn-Registered Trademark- Casino Boardwalk is
situated on a 7.8-acre site on the Las Vegas Strip between Flamingo Road and
Tropicana Avenue. It includes 653 hotel rooms, approximately 33,000 square
feet of casino space, a coffee shop, a full-service restaurant, a snack bar,
an entertainment lounge, two bars, two outdoor swimming pools and 1,125
garage and surface parking spaces (including those spaces acquired with the
shopping center lease). It also contains a small gift shop under lease to
Holiday Gifts, Inc., a Nevada corporation owned by Avis P. Jansen, the
Chairman of the Board of Directors and a principal shareholder of the
Company. The Company has recently completed a substantial hotel and casino
renovation and expansion program.
Boardwalk Casino, Inc. was incorporated under the laws of the State of
Nevada on July 27, 1993; Holiday Gifts, Inc. was incorporated under the laws
of the State of Nevada on December 23, 1971. The Company's principal
executive office is located at 3750 Las Vegas Boulevard South, Las Vegas,
Nevada 89109 and its telephone number is (702) 735-2400.
LOCATION
The Holiday Inn-Registered Trademark- Casino Boardwalk is strategically
located to take advantage of the development and construction of adjacent
mega-hotel/casino projects. Las Vegas Boulevard, more commonly known as "The
Strip," is currently the center of gambling activity in Las Vegas. There are
other concentrations of casinos located in downtown Las Vegas and suburban
locations. The Las Vegas Strip has the highest concentration of casino space
and hotel rooms in Southern Nevada and it is the location of substantially
all of the premier Las Vegas hotels.
The Company believes that its highly visible and accessible location is
an important factor in attracting visitors as gaming customers.
BACKGROUND
Holiday Gifts, Inc. ("HGI") began gaming operations in 1977 under the
trade name "The Slot Joyn't" when it was granted a restricted Nevada gaming
license for 15 slot machines. In 1980, HGI was granted a nonrestricted
Nevada gaming license and expanded its operations at The Slot Joyn't to 35
slot machines. In 1985, VC, Ltd., Limited Partnership, an affiliated limited
partnership of which HGI was the general partner, acquired the adjacent
Holiday Inn property and began operating it under the trade name "Viscount
Hotel." Thereafter, HGI constructed a physical connection between the hotel
and casino and, in 1989, changed the trade name of the combined businesses to
the Boardwalk Hotel & Casino. In September 1995, the Company substantially
completed a renovation of the casino by expanding the casino floor space by
18,000 square feet and remodeling the front facade of the property. In May
1996, the Company substantially completed the development and construction of
a new 16-story 451-room hotel tower on its property in addition to the
existing four- and six-story towers. As a result of these expansions and
other incremental additions, the Holiday Inn-Registered Trademark- Casino
Boardwalk currently consists of a 653-room hotel and a casino of
approximately 33,000 square feet with 647 slot machines, 20 table games and a
full-service race and sports book.
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BUSINESS STRATEGY
Management believes that the following key principles have been and will
continue to be integral to its success as a gaming operator:
TARGETED CUSTOMER BASE
The Company's business strategy emphasizes attracting and retaining
customers from two primary market segments, tourism and local patronage. As
the Company's property has developed by the increase of its room base from
202 rooms to 653 rooms and the completion of its boardwalk exterior facade,
the Company has focused its emphasis on marketing a larger room base and
capturing the added traffic generated by the development of the mega resorts
surrounding the Boardwalk Casino. The Boardwalk Casino is disproportionately
large in relation to its room count, thus allowing for the increase in
pedestrian traffic generated by the room base of surrounding mega resorts and
new mega resorts under construction. The Company believes that its visitor
patrons are discerning customers who enjoy the Company's hotel and casino as
an alternate to the larger surrounding attractions on the Las Vegas Strip.
FOCUS ON REPEAT CUSTOMERS
Generating customer satisfaction and loyalty is a critical component of
the Company's business strategy. The Company attracts customers from both
the tourist and local markets by offering significant value in its dining
experiences and its promotional programs. The Company markets its rooms
through the Holiday Inn reservation system and its internal group tour,
meeting and travel department. The Company believes the local market is
primarily influenced by the actual value of its food operations coupled with
specific promotions. Although perceived value attracts customers to the
Holiday Inn-Registered Trademark- Casino Boardwalk initially, actual value
generates customer loyalty and satisfaction. Management believes that actual
value becomes apparent during the customer's visit through an enjoyable and
high quality entertainment experience.
AFFORDABLE QUALITY
Because the Company targets the frequent repeat customer, management is
committed to providing a quality entertainment experience for its customers
at an affordable price. Dining is a primary motivation for a majority of all
casino visits by both tourists and local residents, and management believes
that the value offered by the Company's restaurants, deli, ice cream parlor
and snack bar is a major factor in attracting its customers. The Company
offers generous portions of high quality food at reasonable prices. In
addition, the Company provides a high level of value to its hotel guests by
offering moderately priced rooms which are well-appointed relative to
comparably priced Las Vegas hotels. Management believes that providing
affordable quality to customers contributes significantly to casino patronage.
STRATEGIC LOCATION
Management believes that the location of the Holiday Inn-Registered
Trademark- Casino Boardwalk provides the Company with a significant
competitive edge. With 436 feet of frontage on The Strip, the Company is
able to offer inviting opportunities for the pedestrian traffic generated by
the surrounding mega resorts. The July 1996 opening of the 3,000-room Monte
Carlo Hotel and Casino immediately south of the Company and the Country Star
restaurant to its north have significantly increased the pedestrian traffic
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on the boardwalk. The 2,200-room New York-New York Hotel and Casino and the
2,000-room addition to the Luxor Hotel and Casino are also expected to
improve pedestrian traffic.
EMPHASIS ON SLOT PLAY
An integral part of the Company's business strategy is an emphasis on
slot machine play. The Company's target market consists of frequent gaming
patrons who seek not only a friendly atmosphere and convenience, but also
higher-than-average payout rates. Accordingly, the Company's slot machine
play provides players with payout rates that are higher than the Las Vegas
Strip average payout rates.
EXPANSION MASTER PLAN
Currently, the Holiday Inn-Registered Trademark- Casino Boardwalk
consists of a 33,000 square feet casino and a hotel containing a total of 653
rooms within a four-story, a six-story and a 16-story building located on the
property site. The Company's master expansion plan for the Holiday
Inn-Registered Trademark- Casino Boardwalk consisted of three phases: (i)
the renovation and refurbishment of the original hotel rooms, which was
completed in May 1994, (ii) the expansion of the casino, which was
substantially completed in September 1995, and (iii) the development and
construction of a 16-story, 451-room hotel tower, a parking garage and
surface parking (accommodating 1,125 cars) and the completion of the 27,000
square foot second floor of the casino. The development and construction of
the 16-story, 451-room hotel tower was substantially completed in May 1996.
The Company anticipates that the development and construction of the 27,000
square foot second floor of the casino should be completed by April 1997.
The Company has expanded the casino floor space from 15,000 square feet
to 33,000 square feet and increased the number of slot machines from 212 to
647 and the number of table games from six to 20. In addition, the casino
also features a full-service race and sports book. As part of the casino
expansion project, the Company relocated and increased the seating capacities
of its restaurant and its new coffee shop. Management believes that this
expansion was necessary to respond to its expanding customer base and target
markets.
As part of its expansion master plan, the Company remodeled the front
facade of the Holiday Inn-Registered Trademark- Casino Boardwalk to present a
"Coney Island Amusement Park" theme conforming to the historical character
and general architecture of Coney Island, New York's famous amusement park.
The casino has been combined with the new construction, creating a new
exterior with 436 feet of horizontal frontage and an estimated height of 53
feet. The "boardwalk" consists of amusement games and specialty food and/or
gift shops. New state-of-the-art outdoor signage has completed the design
renovation and casino expansion.
The boardwalk consists of a total of 6,000 square feet of retail space,
including shops, amusement games and food services. Each of the shops along
the boardwalk offers access into the casino. The facade features a full-size
model roller coaster rising 90 feet above the boardwalk. A rotating ferris
wheel, complete with mannequins, is in place on the facade above the
boardwalk, as is a parachute drop with mannequins. The facade features the
Company's logo, Jocko the Clown, whose face stands approximately 45 feet high
and whose likeness is reproduced on certain of the retail merchandise which
is sold by the Company's retail shops.
In May 1996, the Company substantially completed the development and
construction of a new 16-story 451-room hotel tower on its property in
addition to the existing four- and six-story towers. The
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new 27,000 square foot second level of the existing casino is currently under
construction and will provide a large buffet area and additional meeting
rooms. This new second floor will also provide a walkway to the parking
garage.
On December 16, 1993, the Company entered into a license agreement with
Holiday Inns Franchising, Inc. to operate a "Holiday Inn-Registered
Trademark-" hotel at its location. The agreement, as amended, required the
Company to perform certain construction and renovation work and to open 200
rooms as a Holiday Inn by May 1, 1994 and a minimum of 300 additional rooms
as a Holiday Inn by April 1, 1996. Thereafter, the Company may open a
maximum of 1,000 rooms as a Holiday Inn by October 1, 1998. The agreement
provides that the Company will pay (i) a monthly royalty of 5% of the gross
rooms revenues; (ii) a "marketing contribution" of 1.5% of the gross rooms
revenues; (iii) a "reservation contribution" of 1.0% of the gross rooms
revenues; and (iv) a monthly Holidex fee of $6.43 for each guest room on the
Holidex reservation system. The license granted under the agreement expires
ten years from the date of the opening of the hotel under the "Holiday Inn"
system (June 16, 1994), subject to earlier termination as set forth therein.
$40 MILLION FIRST MORTGAGE NOTES OFFERING
On April 12, 1995, the Company completed the private sale of $40 Million
16.5% First Mortgage Notes due 2005 (the "First Mortgage Notes"). The First
Mortgage Notes were issued under the Indenture between Boardwalk Casino,
Inc., Issuer and Shawmut Bank, N.A., Trustee for $40,000,000 16.5% First
Mortgage Notes Due March 31, 2005, Dated as of April 7, 1995 (the
"Indenture"). See "Description of Securities" for a summary of the
provisions of the First Mortgage Notes and the Indenture.
The proceeds of the First Mortgage Notes were applied to (i) finance
approximately $29.6 million of construction costs for the 16-story 451-room
hotel tower, parking facility, 27,000 square foot second level addition to
the existing casino and related improvements; (ii) finance the retirement of
approximately $5.9 million of existing indebtedness; (iii) pay approximately
$1.5 million of fees and expenses incurred in connection with the offering
and sale of the First Mortgage Notes; and (iv) provide approximately $3.0
million for working capital and other corporate purposes.
As part of the private sale of the First Mortgage Notes, the Company
issued to the First Mortgage Notes purchaser 1,281,869 common stock purchase
warrants exercisable to purchase 1,281,869 shares of Common Stock at $6.00
per share anytime before April 11, 2005. Further, in connection with the
private placement and sale of the First Mortgage Notes, the Company issued to
the Placement Agent and Financial Advisor (and its affiliates) an aggregate
of 626,823 common stock purchase warrants exercisable to purchase 626,823
shares of Common Stock at $6.00 per share anytime before April 11, 2000. See
"Description of Securities - Noteholder Warrants and Placement Agent
Warrants."
PRIVATE FINANCING WITH DIVERSIFIED OPPORTUNITIES GROUP LTD.
On September 25, 1996, the Company entered into a private transaction
(the "Transaction") by and among Diversified Opportunities Group Ltd., an
Ohio limited liability company ("Diversified"), the Company, and Norbert W.
Jansen, individually and as trustee under an agreement dated July 14, 1993
("Jansen"). Pursuant to the terms of a Purchase Agreement dated as of
September 24, 1996 (the "Purchase Agreement") among Diversified, the Company
and Jansen, the first phase of the Transaction was consummated on September
25, 1996. In the first phase of the Transaction, the Company sold to
Diversified 571,429 shares of Common Stock at a price of $7.00 per share for
a total purchase price of
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$4,000,000 and issued to Diversified a convertible subordinated note (the
"Diversified Note") in the principal amount of $5,000,000. In the first
phase, Jansen also sold to Diversified 182,411 shares pursuant to the terms
of an Option and Proxy Agreement (the "Option Agreement"). In addition, as
of September 24, 1996, the Company and Diversified also executed a
Registration Agreement (the "Registration Agreement").
The following is a summary of certain terms of the Purchase Agreement,
the Diversified Note, the Option Agreement and the Registration Agreement
(collectively, "the Transaction Documents"). This summary of the Transaction
Documents is qualified in its entirety by reference to the Transaction
Documents, copies of which have been previously filed with the Commission.
The principal business of Diversified is developing and acquiring
investments in the gaming industry and managing, supervising, selling or
otherwise disposing of such investments and engaging in activities incidental
or ancillary thereto. There are two members of Diversified, (i) Gary L.
Bryenton and Jeffrey P. Jacobs, as trustees under the Opportunities Trust
Agreement dated February 1, 1996 (the "Trust") and (ii) Jacobs Entertainment
Ltd., an Ohio limited liability company ("Entertainment"). Entertainment is
the Manager of Diversified. Jeffrey P. Jacobs ("Jacobs") and Jacobs
Entertainment Inc. (a corporation in which Jacobs owns 100% of the
outstanding capital stock) are the members of Entertainment and Jacobs is the
manager of Entertainment. Both the Trust and Entertainment were formed
primarily to hold their interest in Diversified.
The first phase of the Transaction closed on September 25, 1996. At
such time, Boardwalk sold to Diversified 571,429 shares. Pursuant to the
Option Agreement, Jansen sold to Diversified 182,411 shares. In addition,
Boardwalk issued the Diversified Note to Diversified. Diversified has the
right, at its option, to convert the Diversified Note into shares at any time
following its receipt of all necessary licensing approvals from the Nevada
State Gaming Control Board (the "Gaming Board"), the Nevada Gaming Commission
(the "Commission") and local licensing authorities. The Diversified Note is
convertible into a number of shares determined by dividing the then unpaid
principal balance of the Diversified Note by $7.50. The Diversified Note
provides for a variable interest rate of LIBOR plus 2% and interest thereon
is payable on a quarterly basis. The principal of the Diversified Note is
due and payable in September 1998.
On November 25, 1996, Diversified was advised by the Gaming Board that
the second phase of the Transaction will not result in a change in control of
the Company pursuant to the regulations of the Gaming Board and the
Commission. On December 2, 1996, phase two of the Transaction was
consummated. In phase two, Diversified purchased an additional 317,589
shares from Jansen pursuant to the Option Agreement, and the Company's Board
of Directors (the "Board") was expanded to six directors, with Jacobs being
appointed as the sixth director.
The final phase of the Transaction provides Diversified the option to
acquire an additional 1,000,000 shares from Jansen pursuant to the Option
Agreement. The exercise of this option is subject to Diversified obtaining
all necessary licensing approvals from the Gaming Board, the Commission and
the Nevada local licensing authorities. At such time as Diversified acquires
a total of 1,000,000 shares from Jansen pursuant to the Option Agreement, the
Company's Board will be expanded to seven directors with the additional
director being designated by Diversified.
The Option Agreement further provides for first refusal and first offer
rights for Diversified on shares to be sold by Jansen, his estate and family.
The Option Agreement requires that Jansen vote all
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of his shares and any other securities of the Company over which he has
control and that he take all necessary or desirable actions within his
control so that: (i) the Board is established at six directors; (ii) Jacobs
is elected to the Board as one of the six directors; and (iii) once
Diversified acquires 1,000,000 or more shares from Jansen pursuant to the
Option Agreement, the Board is expanded to seven directors with the
additional director to be designated by Diversified. Diversified is also
granted an irrevocable proxy to vote Jansen's shares if Jansen fails to
comply with the terms of the Option Agreement relating to the Board, or any
restrictive covenants imposed on the Company pursuant to the Diversified Note.
The Registration Agreement gives Diversified certain rights with respect
to registering for sale under the Securities Act and applicable state laws
the shares that it may acquire pursuant to the Transaction. The Registration
Agreement gives Diversified the right, through September 24, 2001, to demand
that the Company effect up to three registrations (two of which are to be
paid by the Company and one of which will be paid by Diversified) of such
shares subject to the conditions set forth in the Registration Agreement. In
addition, Diversified has the right to have such shares included in certain
registrations under the Securities Act that the Company may effect other than
pursuant to such demand, subject to the conditions set forth in the
Registration Agreement.
MARKETING
The Holiday Inn-Registered Trademark- Casino Boardwalk has historically
relied upon limited casino and other promotions designed to appeal to local
residents. With the completion of the expansion of the casino and the hotel,
the Company has implemented an aggressive marketing plan to promote the hotel
and the casino. The Company believes that the "Coney Island" theme exterior
facade will enhance its ability to attract pedestrian traffic currently
generated by the existing mega resorts as well as those mega resorts under
construction and in the planning phase which surround the Holiday
Inn-Registered Trademark- Casino Boardwalk. With its oversized casino in
relation to its room inventory, the "Coney Island" facade, and the Company's
inexpensive dining value offerings, the Company believes that it is
positioned to attract the mega resort customer as an addition to its
established local and hotel customer bases.
CURRENT OPERATIONS
GAMING. Historically, the casino has accounted for approximately 40% of
the net revenues of the Holiday Inn-Registered Trademark- Casino Boardwalk.
These revenues were primarily derived from the 212 slot machines and four
table games. With the newly expanded casino, it is anticipated that the
gaming revenue provided by slot machines will continue to be the primary
component of the Company's gaming revenues and income from operations.
Currently, the Holiday Inn-Registered Trademark- Casino Boardwalk has 647
slot machines and 20 table games on its casino floor and operates a
full-service race and sports book. On average, the preponderance of the
weekly gaming net revenues are generated on weekends. The gaming revenues
are provided by a broad base of customers and are not dependent on
high-stakes players.
In connection with its gaming activities, the Company follows a policy
of stringent controls in compliance with the standards set by the Nevada
Gaming Authorities. As a matter of policy, the Company does not extend
credit to its gaming customers.
NON-GAMING. The Holiday Inn-Registered Trademark- Casino Boardwalk has
653 rooms, two outdoor pools and a retail gift shop leased to HGI. The
Company offers its hotel rooms at modest prices (as of September 30, 1996,
the average room rate was approximately $60.00). For fiscal year 1995, the
Holiday Inn-Registered Trademark- Casino Boardwalk's average occupancy was
approximately 59.42%. For the fiscal year ended September 30,
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1996, the average occupancy was approximately 76.44%. See "Management's
Discussion and Analysis or Plan of Operation" for more information regarding
the Company's gaming and non-gaming operations and revenues.
The Company offers a full service restaurant, a coffee shop, a snack
bar, an entertainment lounge and two bars for its casino and restaurant
patrons. As with its hotel accommodations, the Company's food and beverage
services are moderately priced.
COMPETITION
There is intense competition among companies in the gaming industry,
many of which have significantly greater financial resources than the
Company. The Holiday Inn-Registered Trademark- Casino Boardwalk faces
competition from all other casinos and hotels in the Las Vegas areas. The
Holiday Inn-Registered Trademark- Casino Boardwalk competes directly with a
number of other operations targeted to local residents. Indirectly and to a
lesser extent, its operations compete generally with gaming operations in
other parts of the State of Nevada, such as Reno, Laughlin and Lake Tahoe,
with facilities in Atlantic City, New Jersey and other parts of the world and
with state-sponsored lotteries, on- and off-track wagering, card parlors,
riverboat and Native American gaming ventures and other forms of legalized
gambling. Certain states have recently legalized, and several other states
are currently considering legalizing, casino gaming in designated areas.
Legalized casino gaming in other states and on Native American reservations
represents additional competition to the Company and could adversely affect
the Company's operations, particularly if such gaming were to occur in areas
close to the Company's operations.
EMPLOYEES
As of September 30, 1996, the Company employed 600 full-time employees,
including its three executive officers, 40 managers and supervisors, 160
casino personnel, 220 food and beverage personnel, 157 hotel personnel and 20
administrative personnel. The Company occasionally employs part-time workers
as needed. None of the Company's employees is covered by a collective
bargaining agreement. The Company believes that its relationship with its
employees is excellent.
PROPERTY
See "Business - General" for a complete description of the property
owned by the Company.
Effective October 1, 1996, in connection with the private transaction
with Diversified Opportunities Group Ltd., the Company entered into a lease
agreement (the "Lease Agreement") as the tenant with The Jansen Trust (as
hereinafter defined) as the landlord. The Lease Agreement covers certain land
to the north of the hotel and casino (the "Property") which enables the
Company to control the use of the Property and provides the Company with an
option to purchase the Property for possible expansion of the hotel and
casino.
The Property consists of approximately 1.07 acres of land and has 150
feet of frontage on the Strip. It currently contains a two-story office
building which is leased to several retail and office tenants, including the
executive and administrative offices of the Company. The Lease Agreement
commenced October 1, 1996 and has a term of 24 months, with an option to
extend the lease term for an additional five years and a second, successive,
option to extend it an additional 23 years. The base rent of $70,000 per
month ($840,000 per year) is subject to adjustment after five years. In
addition, the Lease Agreement
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grants the Company an option to purchase the Property under certain terms and
conditions. The Company believes that the terms of the Lease Agreement are
fair and reasonable and on as beneficial terms as could be obtained from an
unaffiliated third party consistent with other rentals assessed in the market
area for similar facilities.
The Company does not invest in, and has not adopted any policy with
respect to investments in, real estate or interests in real estate, real
estate mortgages or securities of or interests in persons primarily engaged
in real estate activities. It is not the Company's policy to acquire assets
primarily for possible capital gain or primarily for income.
LITIGATION
No material legal proceedings to which the Company is a party or to
which the property of the Company is subject are pending and no such
proceedings are known by the Company to be contemplated.
REGULATION AND LICENSING
The ownership and operation of casino gaming facilities in Nevada are
subject to (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (the "Nevada Act") and (ii) various local regulations. The
Company's gaming operations are subject to the licensing and regulatory
control of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada
State Gaming Control Board (the "Nevada Board") and the Clark County Liquor
and Gaming Licensing Board (the "CCB"). The Nevada Commission, the Nevada
Board and the CCB 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.
Change in such laws, regulations and procedures could have an adverse effect
on the Company's gaming operations.
The Company is required to be licensed by the Nevada Gaming Authorities.
The gaming licenses require the periodic payment of fees and taxes and are
not transferable. The Company is also required to be registered by the
Nevada Commission as a publicly traded corporation ("Registered Corporation")
and as such, it is required periodically to submit detailed financial and
operating reports to the Nevada Commission and furnish any other information
that the Nevada Commission may require.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company in order
to determine whether such individual is suitable or should be licensed as a
business associate of a gaming licensee. Officers, directors and certain key
employees of the Company must file applications with the Nevada Gaming
Authorities and may be required to be licensed or found suitable by the
Nevada Gaming Authorities. The Nevada Gaming
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Authorities may deny an application for licensing for any cause which they
deem reasonable. A finding of suitability is comparable to licensing, and
both require submission of detailed personal and financial information
followed by a thorough investigation. An applicant for licensing or an
applicant for a finding of suitability must pay all 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 licensing, the Nevada Gaming Authorities have
the jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or
key employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, the Company would have to sever all
relationships with such person. In addition, the Nevada Commission may
require the Company to terminate the employment of any person who refused to
file appropriate applications. Determinations of suitability or questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company is required to submit detailed financial and operating
reports to the Nevada Commission. Substantially all material loans, leases,
sales of securities and similar financing transactions of the Company must be
reported to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by the Company,
the gaming licenses it holds could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and regulatory
procedures. In addition, the Company and the persons involved could be
subject to substantial fines for each separate violation of the Nevada Act at
the discretion of the Nevada Commission. Further, a supervisor could be
appointed by the Nevada Commission to operate the Company's gaming property
and, under certain circumstances, earnings generated during the supervisor's
appointment (except for the reasonable rental value of the gaming property)
could be forfeited to the State of Nevada. Limitation, conditioning or
suspension of any gaming license of the Company or the appointment of a
supervisor could (and revocation of any gaming license would) have a material
adverse effect on the Company's gaming operations.
Any beneficial holder of Common Stock or any other voting security of
the Company ("Company Voting Securities") regardless of the number of shares
owned, may be required to file an application, be investigated, and have such
person's suitability as a beneficial holder of Company 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 the investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires beneficial ownership of
more than 5% of Company Voting Securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more
than 10% of Company Voting Securities apply to the Nevada Commission for a
finding of suitability within thirty days after the Chairman of the Nevada
Board mails the written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act,
which acquires beneficial ownership of more than 10%, but not more than 15%,
of Company Voting Securities may apply to the Nevada Commission for a waiver
of such finding of suitability if such institutional investor holds Company
Voting Securities for investment purposes only. An institutional investor
shall not be deemed to hold Company Voting Securities for investment purposes
unless Company 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
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Board of Directors of the Company, any change in the Company's corporate
charter, bylaws, management, policies or operations of the Company, or any
other action which the Nevada Commission finds to be inconsistent with
holding Company Voting Securities for investment purposes only. Activities
which are not deemed to be inconsistent with holding voting securities for
investment purposes only include: (i) voting on all matters voted on by
stockholders; (ii) making financial and other inquiries of management of the
type normally made by securities analysts for informational purposes and not
to cause a change in management, policies or operations; and (iii) such other
activities as the Nevada Commission may determine to be consistent with such
investment intent. If the beneficial holder of voting securities who must be
found suitable is a corporation, partnership, limited partnership, limited
liability company or trust, it must submit detailed business and financial
information including a list of beneficial owners. The applicant is required
to pay all costs of investigation. Norbert W. Jansen, the Company's largest
stockholder, has been found suitable as a controlling stockholder of the
Company.
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 by the Chairman of the Nevada Board may be found unsuitable.
The same restrictions apply to a record owner if the record owner, after
request, fails to identify the beneficial owner. Any stockholder found
unsuitable and who holds, directly or indirectly, any beneficial ownership of
Company Voting Securities 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, the Company (i) pays that person any dividend or interest upon any
Company Voting Securities; (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 the voting securities for cash at fair
market value. Additionally, the CCB has the authority to approve all persons
owning or controlling the stock of any corporation controlling a gaming
licensee.
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 such debt security of a Registered
Corporation. If the Nevada Commission determines that a person is unsuitable
to own such security, then pursuant to the Nevada Act, the Registered
Corporation can be sanctioned, including the loss of its approvals, if
without the prior approval of the Nevada Commission, it (i) pays to the
unsuitable person any dividend, interest or any distribution whatsoever; (ii)
recognizes any voting right by such unsuitable person in connection with such
securities; (iii) pays the unsuitable person remuneration in any form; or
(iv) makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation or similar transaction.
The Company is required to maintain a current stock ledger in Nevada
which may be examined by the Nevada Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder
may be required to disclose the identity of the beneficial owner to the
Nevada Gaming Authorities. A failure to make such disclosure may be grounds
for finding the record holder unsuitable. The Company is also required to
render maximum assistance in determining the identity of the beneficial owner
of any Company Voting Securities. The Nevada Commission has the power to
require the Company's stock certificates to bear a legend indicating that the
securities are subject to the Nevada Act. However, to date, the Nevada
Commission has not imposed such a requirement on the Company.
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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. Any approval, if granted, does not constitute a finding,
recommendation or approval of the Nevada Gaming Authorities as to the
accuracy or adequacy of the prospectus or the investment merits of the
securities offered thereby. 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
Nevada Commission in a variety of stringent standards prior to assuming
control of such Registered Corporation. The Nevada Commission may also
require controlling stockholders, officers, directors and other persons
having a material relationship or involvement with the entity proposing to
acquire control, to be investigated and licensed as part of the approval
process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada gaming licenses, 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 its stockholders for the purpose of acquiring
control of the Company.
License fees and taxes, computed in various ways depending on the type
of gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Company's operations are conducted.
Depending upon the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly or annually and are based upon either: (i)
a percentage of the gross revenues received; (ii) the number of gaming
devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operators where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
Corporate Licensees that hold a license as an operator of a slot route, or a
manufacturer's or distributor's license also pay certain fees and taxes to
the State of Nevada.
Any person who is licensed, 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 Licensee's participation
in such foreign gaming. The revolving fund is subject to increase or
decrease in the discretion of the Nevada Commission. Thereafter, Licensees
are required to comply with certain reporting requirements imposed by the
Nevada Act. A Licensee is also subject to disciplinary action by the Nevada
Commission if it knowingly violates any laws of the foreign
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jurisdiction pertaining to the foreign gaming operation, fails to conduct the
foreign gaming operation in accordance with the standards of honesty and
integrity required of Nevada gaming operations, engages in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employs a person in the foreign operation who has been denied a
license or finding of suitability in Nevada on the ground of personal
unsuitability.
The sale of alcoholic beverages by the Company is subject to licensing,
control and regulation by applicable local regulatory agencies. All 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 upon the operations of the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the Company's
directors and executive officers and the positions they hold with the
Company. All directors are elected at the annual meeting of stockholders to
serve one year or until their successors are elected and qualified.
NAME AGE POSITION
- ---- --- --------
Norbert W. Jansen* 78 Former Chief Executive Officer and Former
Chairman of the Board of Directors
Avis P. Jansen 69 Chairman of the Board of Directors and Vice
President
Forrest J. Woodward, II 54 President and Chief Operating Officer
Louis J. Sposato 46 Chief Financial Officer, Secretary, Treasurer
and Director
James Scibelli 46 Director
Keven J. Picardo 40 Director
Jeffrey P. Jacobs 43 Director
- -------------------
*Mr. Jansen died on January 6, 1997. The Company has not yet acted to fill
his position on the Board of Directors or appoint a new Chief Executive
Officer of the Company.
NORBERT W. JANSEN served as the Chairman of the Board of Directors and
the Chief Executive Officer of the Company until his death on January 6,
1997. He had been employed in the gaming industry in various capacities and
at various times since 1947, working first as a race book writer and "21" and
craps dealer, before becoming slot manager at the Silver Slipper in Las Vegas
in 1956. From 1964 to 1967, Mr. Jansen was an owner and officer of the
Pioneer Club in downtown Las Vegas. In the 1960s and early 1970s, Mr. Jansen
was a developer of the Holiday Inn-Center Strip, now Harrah's Las Vegas. Mr.
Jansen had been investigated and licensed by state and local gaming
authorities on numerous occasions. In 1977, Mr. Jansen was licensed as
landlord of The Slot Joyn't, the small casino that subsequently became part
of the Holiday Inn-Registered Trademark- Casino Boardwalk. In 1988 and 1990,
Mr. Jansen was granted limited nonrestricted licenses as an owner, officer
and director of HGI. In 1992, the Nevada Gaming Authorities granted Mr.
Jansen an unlimited nonrestricted license.
AVIS P. JANSEN serves as the Chairman of the Board of Directors and the
Vice President of the Company. Since 1971, she has served as the president,
secretary and treasurer of Holiday Gifts, Inc., the former operator of the
Company's casino. Mrs. Jansen is the wife of Norbert W. Jansen.
FORREST J. WOODWARD, II serves as the President and Chief Operating
Officer of the Company. Mr. Woodward began his gaming career in 1966,
serving as controller of the Pioneer
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Club and Pioneer Hotel in Las Vegas until 1969. From 1969 to 1972, he served
as controller and, thereafter, executive vice president of the Flamingo
Hotel. From 1972 to 1977, Mr. Woodward served as executive vice president
and assistant general manager of the Thunderbird Hotel. From 1978 to 1985,
he served as executive vice president and assistant general manager of the
Desert Inn Country Club and Spa, with responsibility for all aspects of
gaming and hotel marketing. From 1986 to 1988, Mr. Woodward served as
executive vice president of the Dunes Hotel and Country Club, with
responsibility for the management of the hotel and gaming areas. During
1990, he served as general manager of the Landmark Hotel and Casino, having
been appointed by the Federal Bankruptcy Court to operate the property. In
addition, from 1987 to 1993, Mr. Woodward served as chairman, president and
majority shareholder of Las Vegas Resorts Corporation, a public company
engaged in land acquisitions related to casino hotels. From 1992 to 1993,
Mr. Woodward served as senior vice president - administration for the Stars'
Desert Inn Hotel and Country Club. Thereafter, from 1993 until joining the
Company in August 1995, he served as senior vice president - administration
for Sheraton Desert Inn. His responsibilities at the Desert Inn included all
domestic casino marketing, marketing and operations of gaming activities and
operations of the country club, security and surveillance. Mr. Woodward
received his Bachelor of Science degree from the University of Nevada at Las
Vegas in 1968.
LOUIS J. SPOSATO serves as the Chief Financial Officer, Secretary,
Treasurer and a director of the Company. He received his Bachelor of Science
degree in accounting from Fordham University in 1972. From 1983 to 1988, Mr.
Sposato served as comptroller of Union Plaza Hotel & Casino, Las Vegas,
Nevada, where he directed the hotel and casino's administrative functions and
compliance requirements, including Nevada Gaming Commission Regulation 6
(internal control procedures for all licensees) and Regulation 6A (casino
currency transaction recordkeeping and reporting requirements). From 1988 to
1989, Mr. Sposato served as assistant controller for Electronic Data
Technologies, Las Vegas, Nevada, with responsibility for implementing their
slot machine route accounting system. From 1989 to 1990, he served as
assistant controller of Alexis Park Resort Hotel, Las Vegas, Nevada, with
responsibility for all accounting functions. Since 1990, Mr. Sposato has
also served as controller of Holiday Gifts, Inc.
JAMES SCIBELLI serves as a director of the Company. Since March 1986,
Mr. Scibelli has served as president of Roberts & Green, Inc., a New York
investment banking firm offering a variety of investment services. Since
August 1991, he has also been an officer and director of SG Capital Corp., a
financial consulting company. Mr. Scibelli serves as a director and a member
of the compensation committee of Acclaim Entertainment, Inc. and a director
of B.U.M. International, Inc. Mr. Scibelli devotes such time as is necessary
to the affairs of the Company.
KEVEN J. PICARDO serves as a director of the Company. From 1984 to
1990, Mr. Picardo served as an investment advisor and mutual fund director
for Paine Webber Incorporated. From 1990 to 1994, he served as an associate
vice president of Kemper Securities, Inc. From 1994 until October 1995, Mr.
Picardo served as senior vice president of USA Capital Management Group,
Inc., Las Vegas, Nevada. From October 1995 to January 1997, he served as
senior financial consultant with Signal USA Securities, Inc., Las Vegas,
Nevada. Since January 1997, Mr. Picardo serves as senior investment
executive with RAF Financial Corporation, Las Vegas, Nevada. Mr. Picardo
devotes such time as is necessary to the affairs of the Company.
JEFFREY P. JACOBS serves as a director of the Company. Beginning in
1984, Mr. Jacobs developed the riverfront entertainment district, known as
the "Flats", in Cleveland, Ohio. He also has developed, owns and manages
several apartment complexes in Cleveland and throughout Ohio. In 1996, Mr.
Jacobs became the Chief Executive Officer and Co-Chairman of the Board of
Directors of BlackHawk Gaming
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<PAGE>
& Development Co. ("BlackHawk"), a publicly traded gaming company
headquartered in Boulder, Colorado that is co-owner and manager of the Gilpin
Hotel & Casino in BlackHawk, Colorado. Additionally, BlackHawk has begun
construction of a new casino/hotel project in BlackHawk, Colorado that is
scheduled to open in early 1998. In 1996, Mr. Jacobs became the Chief
Executive Officer and Chairman of the Board of Directors of Colonial Downs,
which presently owns and operates two off-track betting parlors in the State
of Virginia, has plans to open four more parlors and is constructing the
first horse racing track in the state, which is scheduled to open in 1997.
Mr. Jacobs received his Bachelor of Business Administration degree from the
University of Kentucky in 1975, his Masters of Business Administration from
Ohio State University in 1977 and his Masters of Urban Planning from
Cleveland State University in 1979. He served as a member of the Ohio House
of Representatives from 1984 through 1986. Mr. Jacobs devotes such time as
is necessary to the affairs of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16a-3(e) during its most recent
fiscal year and Forms 5 and amendments thereto furnished to the Company with
respect to its most recent fiscal year, and any written representation from
the reporting person (as hereinafter defined) that no Form 5 is required, the
Company is not aware of any person who, at any time during the fiscal year,
was a director, officer, beneficial owner of more than ten percent of any
class of equity securities of the Company registered pursuant to Section 12
of the Exchange Act ("reporting person"), that failed to file on a timely
basis, as disclosed in the above Forms, reports required by Section 16(a) of
the Exchange Act during the most recent fiscal year.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has not established any separate nominating
committee. The Board has established a Compensation Committee, which
consists of Avis P. Jansen and James Scibelli. Its functions are to review
and approve annual salaries and bonuses for all executive officers, review,
approve and recommend to the Board of Directors the terms and conditions of
all employee benefits or changes thereto, and manage and administer the
Company's 1994 Stock Compensation Plan.
The Board of Directors has established an Audit Committee, which
consists of Messrs. Scibelli, Picardo and Sposato. The functions of the
Audit Committee are to recommend annually to the Board of Directors the
appointment of the independent public accountants of the Company, discuss and
review the scope and the fees of the prospective annual audit and review the
results thereof with the independent public accountants, review and approve
non-audit services of the independent public accountants, review compliance
with existing accounting and financial policies of the Company, review the
adequacy of the financial organization of the Company and review management's
procedures and policies relative to the adequacy of the Company's internal
accounting controls and compliance with federal and state laws relating to
financial reporting.
The Board of Directors has also established a Stock Option Committee,
which consisted of Messrs. Jansen and Sposato as of September 30, 1996. The
Company has not yet appointed a successor to Mr. Jansen on the Stock Option
Committee. The function of the Stock Option Committee is to manage and
administer the Company's Outside Directors Stock Option Plan.
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<PAGE>
EXECUTIVE COMPENSATION
The following table, and the accompanying explanatory footnotes,
includes annual and long-term compensation information on (i) the Company's
Chief Executive Officer for services rendered in all capacities during the
fiscal years ended September 30, 1996, 1995 and 1994 and (ii) each executive
officer who received total annual salary and bonus for the fiscal year ended
September 30, 1996 in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
=======================================================================================
Long Term
Annual Compensation Compensation
=======================================================================================
Name and
Principal Fiscal Other Annual Options
Position Year Salary Bonus Compensation Granted
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Norbert W. Jansen, Chief
Executive Officer 1996 $238,000 0 0 0
------------------------------------------------------------
1995 225,000 0 0 170,000
------------------------------------------------------------
1994 200,000 20,000 0 170,000
- ---------------------------------------------------------------------------------------
Forrest J. Woodard, Chief
Operating Officer 1996 180,000 0 0 0
------------------------------------------------------------
1995 21,000 0 0 130,000
=======================================================================================
</TABLE>
EMPLOYMENT AGREEMENTS
Effective as of February 11, 1994, the Company had entered into a
five-year employment agreement with Norbert W. Jansen as Chief Executive
Officer of the Company which provided for an annual base salary of $275,000
as of September 30, 1996. Effective as of January 1, 1995, the Company
entered into a three-year employment agreement with Louis J. Sposato as Chief
Financial Officer, Secretary and Treasurer of the Company which currently
provides for an annual base salary of $95,000. Effective as of August 15,
1995, the Company entered into a five-year employment agreement with Forrest
J. Woodward, II as President and Chief Operating Officer of the Company which
currently provides for an annual base salary of $180,000. On each annual
anniversary of the commencement date of the agreement, the period of
employment is automatically extended for one year unless notified in writing
by either party thereto.
DIRECTORS' COMPENSATION
Each non-employee director of the Company receives $1,000 for each
meeting of the Board of Directors attended. In addition, pursuant to the
Outside Directors Stock Option Plan, Avis P. Jansen, James Scibelli and Keven
J. Picardo have each been granted options to purchase shares of Common Stock
(subject to certain vesting requirements). See "- The Outside Directors
Stock Option Plan."
32
<PAGE>
THE 1994 STOCK COMPENSATION PLAN
The Company and its shareholders have adopted and approved the 1994
Stock Compensation Plan, as amended (the "1994 Plan"). Options granted
pursuant to the 1994 Plan constitute either incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or options which constitute nonqualified options at the time of
issuance of such options. The 1994 Plan provides that incentive stock
options and/or nonqualified stock options may be granted to certain officers,
directors (other than Outside Directors), employees and advisors of the
Company or its subsidiaries, if any, selected by the Compensation Committee.
A total of 2,000,000 shares of Common Stock are authorized and reserved for
issuance under the 1994 Plan, subject to adjustment to reflect changes in the
Company's capitalization in the case of a stock split, stock dividend or
similar event. The 1994 Plan is administered by the Compensation Committee
which has the sole authority to interpret the 1994 Plan and make all
determinations necessary or advisable for administering the 1994 Plan. The
exercise price for any incentive option must be at least equal to the fair
market value of the shares covered thereby as of the date of grant of such
option. Upon the exercise of the option, the exercise price thereof must be
paid in full either in cash, shares of Common Stock of the Company or a
combination thereof. If and to the extent that any option to purchase
reserved shares shall not be exercised by an optionee for any reason or if
such option to purchase shall terminate as provided by the 1994 Plan, such
shares which have not been so purchased thereunder shall again become
available for the purposes of the 1994 Plan unless the 1994 Plan shall have
been terminated.
During the fiscal year ended September 30, 1994, the Company had granted
an aggregate of 295,000 options, including the following options to its
executive officers and Keven J. Picardo (subsequently appointed to the Board
of Directors): Norbert W. Jansen - incentive options to purchase 59,256
shares at $7.43 per share until April 26, 1999 and nonqualified options to
purchase 110,744 shares at $6.75 per share until April 26, 2004; Louis J.
Sposato - incentive options to purchase 90,000 shares at $6.75 per share
until April 26, 2004; and Keven J. Picardo - nonqualified options to purchase
10,000 shares at $6.75 per share until April 26, 2004. Each of the foregoing
options was granted at an exercise price equal to the fair market value of
the Common Stock as of the date of grant (110% with respect to the 59,256
incentive options granted to Norbert W. Jansen). Further, the options vest
and may be exercised in 25% cumulative increments annually from the date of
grant on April 26, 1994, subject to earlier termination or extension.
During the fiscal year ended September 30, 1995, the Company granted an
aggregate of 455,000 additional options, including the following options to
its executive officers: Norbert W. Jansen - incentive options to purchase
64,000 shares at $6.88 per share until April 26, 2000 and nonqualified
options to purchase 106,000 shares at $6.25 per share until April 26, 2005;
Forrest J. Woodward, II - incentive options to purchase 130,000 shares at
$6.00 per share until May 15, 2005; and Louis J. Sposato - incentive options
to purchase 90,000 shares at $6.25 per share until April 26, 2005. Each of
the foregoing options was granted at an exercise price equal to the fair
market value of the Common Stock as of the date of grant (110% with respect
to the 64,000 incentive options granted to Norbert W. Jansen). Further, the
options vest and may be exercised in 25% cumulative increments annually from
the date of grant subject to earlier termination or extension.
During the fiscal year ended September 30, 1996, the Company did not
grant any options under the 1994 Plan.
33
<PAGE>
THE OUTSIDE DIRECTORS STOCK OPTION PLAN
The Company and its shareholders have adopted and approved the Outside
Directors Stock Option Plan, as amended (the "Plan"). The Plan was adopted
in order to enhance the Company's ability to secure and retain highly
qualified and experienced individuals who are not regularly salaried
employees of the Company to serve as directors of the Company. The Plan
provides generally that: (i) the purchase price of the Common Stock under
each option granted shall not be less than the fair market value of the
Common Stock on the date of grant; (ii) no director may be granted during any
calendar year options to purchase more than 20,000 shares of Common Stock;
(iii) no option may be granted for a period of greater than ten years from
the date of grant; and (iv) a maximum of 400,000 shares of Common Stock have
been authorized and reserved for issuance under the Plan.
During the fiscal year ended September 30, 1994, the Company had granted
to each of Avis P. Jansen and James Scibelli nonqualified options to purchase
20,000 shares at $6.75 per share until April 26, 2004. During the fiscal
year ended September 30, 1995, the Company had granted to each of Avis P.
Jansen, James Scibelli and Keven J. Picardo nonqualified options to purchase
20,000 shares at $6.25 per share until April 26, 2005. Each of the foregoing
options was granted at an exercise price equal to the fair market value of
the Common Stock as of the date of grant. Further, the options vest in 25%
increments annually from the date of grant, subject to earlier termination or
extension. During the fiscal year ended September 30, 1996, the Company did
not grant any options under the Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.751 of Chapter 78 of the Nevada Revised Statutes, the
Company's Articles of Incorporation and the Company's Bylaws contain
provisions for indemnification of officers, directors, employees and agents
of the Company. The Company's Bylaws require the Company to indemnify such
persons to the full extent permitted by Nevada law. Each person will be
indemnified in any proceeding if he acted in good faith and in a manner which
he reasonably believed to be in, or not opposed to, the best interests of the
Company. Indemnification would cover expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement.
The Company's Bylaws also provide that the Board of Directors may cause
the Company to purchase and maintain insurance on behalf of any present or
past director or officer insuring against any liability asserted against such
person incurred in the capacity of director or officer or arising out of such
status, whether or not the Company would have the power to indemnify such
person.
As of the date hereof, the Company has not obtained directors' and
officers' liability insurance.
34
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of January 27, 1997, by (i) all persons known
by the Company to be the owner, of record or beneficially, of more than five
percent of the outstanding Common Stock, (ii) each executive officer and
director of the Company and (iii) all directors and executive officers as a
group. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of Common Stock subject to options
currently exercisable or exercisable within 60 days of January 27, 1997 are
deemed outstanding for computing the percentage of the person holding such
securities but are not outstanding for computing the percentage of any other
person.
As far as is known to management of the Company, no person owned
beneficially more than five percent of the outstanding shares of Common Stock as
of January 27, 1997 except as set forth below.
SHARES BENEFICIALLY
NAME OWNED PERCENT OF SHARES
---- ------------------- -----------------
Norbert W. Jansen and Avis Jansen, 2,750,000 38.3
Trustees u/a/d 07/14/93 (1)
Avis P. Jansen (1) 2,892,500 (2) 39.5
Forrest J. Woodward (8) 42,500 (3) *
Louis J. Sposato (8) 67,500 (4) *
James Scibelli (8) 420,000 (5) 5.6
Keven J. Picardo (8) 12,000 (6) *
Jeffrey P. Jacobs (9) 1,071,429 14.9
Franklin Custodian Funds, Inc. - 1,281,869 (7) 15.1
Income Series (8)
Diversified Opportunities Group
Ltd. (9) 1,071,429 14.9
All Executive Officers and Directors
as a group (6 persons) 4,505,929 57.8
- ----------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock.
(1) The business address of Norbert W. Jansen and Avis Jansen, Trustees u/a/d
07/14/93 ("The Jansen Trust") and Avis P. Jansen is 3750 Las Vegas
Boulevard South, Las Vegas Nevada 89109. Such shares are held of record
and beneficially by The Jansen Trust but may be deemed to also be
beneficially owned by Mrs. Jansen (within the meaning of Rule 13d-3 under
the Securities
35
<PAGE>
Exchange Act of 1934, as amended) since, as trustee of The Jansen Trust,
Mrs. Jansen has the power to direct the voting and disposition of such
shares.
(2) Includes options currently exercisable to acquire 127,500 shares of Common
Stock owned by the estate of Norbert W. Jansen and options currently
exercisable to acquire 15,000 shares of Common Stock owned by Avis P.
Jansen.
(3) Includes options currently exercisable to acquire 32,500 shares of Common
Stock.
(4) Includes options currently exercisable to acquire 67,500 shares of Common
Stock.
(5) Includes options currently exercisable to acquire 15,000 shares of Common
Stock and 355,000 redeemable common stock purchase warrants sold by the
Company in its initial public offering dated February 11, 1994 (the
"Warrants"). Each Warrant entitles the holder thereof to purchase one
share of Common Stock at $5.00 per share at any time until February 11,
1998, subject to earlier redemption under certain circumstances.
(6) Includes options currently exercisable to acquire 10,000 shares of Common
Stock.
(7) Represents warrants currently exercisable to acquire 1,281,869 shares of
Common Stock.
(8) The business address of Messrs. Woodward, Sposato, Scibelli and Picardo is
3750 Las Vegas Boulevard South, Las Vegas, Nevada 89109. The business
address of Franklin Custodian Funds, Inc. - Income Series is 777 Mariners
Island Blvd., San Mateo, California 94404.
(9) The business address of Jeffrey P. Jacobs and Diversified Opportunities
Group Ltd. ("Diversified") is c/o Jacobs Entertainment Ltd., 425 Lakeside
Avenue, Cleveland, Ohio 44114. Such shares are held of record and
beneficially by Diversified but may be deemed to also be beneficially owned
by Mr. Jacobs (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) since Mr. Jacobs has the power to direct
the voting and disposition of such shares.
36
<PAGE>
CERTAIN TRANSACTIONS
Effective October 1, 1993, the Company entered into a subscription
agreement (the "VC Subscription Agreement") with all of the partners of VC,
Ltd., Limited Partnership, an affiliated Nevada limited partnership ("VC"). The
sole general partner of VC was Holiday Gifts, Inc., a Nevada corporation ("HGI")
whose sole shareholders at that time were Norbert W. Jansen and Avis P. Jansen,
founders, directors, executive officers and the principal shareholders of the
Company. VC owned certain real property upon which VC owned and operated the
Boardwalk Hotel. Pursuant and subject to the terms and conditions of the VC
Subscription Agreement, the Company acquired all of the VC partners' interests
in and to VC, including the real property and the Boardwalk Hotel (the "Hotel
Assets"), by the issuance to the VC partners of an aggregate of 1,485,714
unregistered shares of Common Stock. Of these 1,485,714 shares, HGI received
757,714 shares as general partner of VC and 16,000 shares as a limited partner.
As a result of the foregoing transaction, the Company acquired all of the
liabilities of VC, including the obligations of VC to Bank of America Nevada
f/k/a Valley Bank of Nevada pursuant to certain promissory notes of VC dated
April 25, 1985 in the original principal amount of $4,000,000 and dated December
1, 1987 in the original principal amount of $1,000,000 (collectively, the "Bank
Loans").
Effective October 1, 1993, the Company entered into a purchase and sale
agreement (the "Jansen Acquisition Agreement") with Norbert W. Jansen
("Jansen"), the then president, principal shareholder and a director of the
Company. Jansen owned certain real property upon which HGI operated the
Boardwalk Casino. Pursuant and subject to the terms and conditions of the
Jansen Acquisition Agreement, the Company acquired all of Jansen's interests in
and to the real property and the Boardwalk Casino (the "Casino Assets") by the
issuance to Jansen of 1,605,250 unregistered shares of Common Stock. As a
result of this transaction and as part of the consideration paid by the Company,
the Casino Assets continued to secure the obligations of VC to Bank of America
Nevada f/k/a Valley Bank of Nevada in connection with the Bank Loans.
Effective October 1, 1993, the Company entered into a purchase and sale
agreement (the "HGI Acquisition Agreement") with HGI. Pursuant to prior leases
formerly with VC, Jansen and the Company, HGI operated, among other things, the
casino and related facilities at the Holiday Inn-Registered Trademark- Casino
Boardwalk and was the owner of certain gaming equipment and related assets used
in connection therewith. Pursuant and subject to the terms and conditions of
the HGI Acquisition Agreement, the Company acquired all of HGI's interests in
and to the casino leases and its gaming equipment and devices (the "Gaming
Assets") by the issuance to HGI of 759,036 unregistered shares of Common Stock.
The Company did not obtain any independent market appraisal nor engage an
investment banker to render any opinion with respect to the fairness to the
Company from a financial point of view of the consideration paid by the Company
in each of the foregoing transactions. However, the Company believes that the
terms of each of the foregoing agreements are at least as favorable as could
have been obtained from non-affiliated third parties.
A personal loan to the Jansens, the proceeds of which were advanced to the
Company in 1987, was collateralized by a second trust deed on certain real and
personal property of the Company. Monthly payments of $3,330, including 14%
interest, were made to the Jansens through September 30, 1993. On October 1,
1993, the Jansens converted their outstanding loans and advances to equity,
including this loan with a balance of $195,483; the loan was paid in full in
August 1994.
37
<PAGE>
In 1993, a parcel of land was quitclaimed to Norbert W. Jansen and,
accordingly, Mr. Jansen's loans and advances were reduced by the fair market
value of the land, which exceeded its historical cost by $115,000.
From October 1, 1993 through February 11, 1994, HGI operated the casino
business of the Company subject to a lease (the "Interim Lease"). The Interim
Lease provided for monthly rentals of $32,500. During this period, the Company
paid certain overhead and general and administrative expenses on behalf of HGI
aggregating $56,780. This amount was recorded by the Company as a receivable
from HGI. Upon the completion of the initial public offering, the Interim Lease
terminated and the Company acquired possession of the casino and title to the
gaming assets for a nominal amount.
In October 1994, the Company agreed to assume the $95,000 liability of
Mr. Jansen in connection with the settlement of certain litigation covering a
claim for architectural fees allegedly incurred in designing a building to be
built upon property owned by the Company. The settlement resulted in a
significant discount of the fees sought and the acquisition of the intellectual
property rights in the building and plans. The Company agreed to assume
Mr. Jansen's liability since his efforts to build the building were undertaken
on behalf of the Company, and not in his individual capacity.
On January 10, 1996, the Company borrowed $500,000 from Mr. Norbert Jansen
and issued to Mr. Jansen a 12% uncollateralized promissory note payable upon the
earlier of the completion of a proposed private placement equity offering or
September 30, 1996. The Company utilized the proceeds of this loan to repay, in
part, a note payable to an unaffiliated third party. On September 25, 1996, the
Company repaid the loan to Mr. Jansen in full.
On March 29, 1996, the Company borrowed $500,000 from Mr. Norbert Jansen
and issued to Mr. Jansen a 12% uncollateralized promissory note payable upon the
earlier of the completion of a proposed private placement equity offering or
September 30, 1996. In addition, on March 29, 1996, the Company borrowed
$500,000 from Mr. James Scibelli and issued to Mr. Scibelli a 10%
uncollateralized promissory note payable upon the earlier of the completion of a
proposed private placement equity offering or November 1, 1996. The Company
utilized the proceeds of these loans to satisfy certain indebtedness due April
1, 1996. On September 25, 1996, the Company repaid the loans to Messrs. Jansen
and Scibelli in full.
In April 1996, the Company borrowed $250,000 from Mr. Norbert Jansen and
issued to Mr. Jansen a 10% uncollateralized promissory note payable on demand
after 90 days. The Company utilized the proceeds of this loan as working
capital. On September 25, 1996, the Company repaid the loan to Mr. Jansen in
full.
During the fiscal years ended September 30, 1995 and 1996, the Company
leased office space for certain executive and administrative employees from
Norbert W. Jansen for approximately $8,375 per month, totaling $43,874 and
$101,375, respectively. The Company believes that the rent charged was fair and
reasonable and on as beneficial terms as could have been obtained from an
unaffiliated third party consistent with other rentals assessed in the market
area for similar facilities.
Effective October 1, 1996, in connection with the private transaction with
Diversified Opportunities Group Ltd., the Company entered into a lease agreement
(the "Lease Agreement") as the tenant with The Jansen Trust as the landlord.
The Lease Agreement covers certain land to the north of the hotel and casino
(the "Property") which enables the Company to control the use of the Property
and
38
<PAGE>
provides the Company with an option to purchase the Property for possible
expansion of the hotel and casino.
The Property consists of approximately 1.07 acres of land and has 150 feet
of frontage on the Strip. It currently contains a two-story office building
which is leased to several retail and office tenants, including the executive
and administrative offices of the Company. The Lease Agreement commenced
October 1, 1996 and has a term of 24 months, with an option to extend the lease
term for an additional five years and a second, successive, option to extend it
an additional 23 years. The base rent of $70,000 per month ($840,000 per year)
is subject to adjustment after five years. In addition, the Lease Agreement
grants the Company an option to purchase the Property under certain terms and
conditions. The Company believes that the terms of the Lease Agreement are fair
and reasonable and on as beneficial terms as could be obtained from an
unaffiliated third party consistent with other rentals assessed in the market
area for similar facilities.
In September 1996, the Company entered into a long term lease with HGI with
respect to the gift shop within the hotel-casino covering approximately 1,000
square feet for an initial term of ten years, with a 5-year option, at a base
monthly lease payment of the greater of $5.00 per square foot or 10% of the
tenant's gross sales. Prior to September 1996, the Company leased to HGI a
different and smaller store on its property as a gift shop at a monthly rental
of $1,000.
All future transactions with affiliates will be on terms no less favorable
than could be obtained from unaffiliated parties. Any loans to officers,
affiliates and/or shareholders of the Company are subject to the approval by a
majority of the disinterested directors of the Company.
See "Business - Private Financing with Diversified Opportunities Group
Ltd." for a summary of the private transaction among the Company, Norbert W.
Jansen and The Jansen Trust, and Diversified Opportunities Group, Ltd., a
limited liability company controlled by Jeffrey P. Jacobs, a director of the
Company.
39
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, par value $.001 per share (the "Common Stock"), and 15,000,000
shares of Preferred Stock, par value $.001 per share (the "Preferred Stock").
As of January 27, 1997, the issued and outstanding capital stock of the Company
consisted of 7,179,429 shares of Common Stock.
The following description of certain matters relating to the capital stock
of the Company is a summary and is qualified in its entirety by the provisions
of the Company's Articles of Incorporation and Bylaws, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Holders of Common Stock are
entitled to receive dividends when, as and if declared by the Board of Directors
out of funds legally available therefor, and to share ratably in the assets of
the Company legally available for distribution to the holders of Common Stock in
the event of liquidation or dissolution. The Common Stock does not have
cumulative voting rights, which means the holder or holders of more than half of
the shares voting for the election of directors can elect all the directors then
being elected. The holders of Common Stock do not have preemptive or other
rights to acquire or subscribe for additional, unissued or treasury shares. All
outstanding shares of Common Stock are fully paid and not liable for further
call or assessment.
As of the date of this Prospectus, there were 7,179,429 shares of Common
Stock outstanding, held of record or beneficially by at least 1,900
stockholders.
PREFERRED STOCK
The Board of Directors has the authority to issue 15,000,000 shares of
Preferred Stock, in one or more series, and to fix the voting powers,
designations, preferences, limitations, restrictions and relative rights of each
such series without any further vote or action by the stockholders, including
the dividend rights, dividend rate, conversion rights, terms of redemption
(including sinking fund provisions), redemption price or prices, liquidation
preferences and the number of shares constituting any series or the designations
of such series. No shares of Preferred Stock have ever been issued, and the
Company has no present plans to issue any Preferred Stock.
The issuance of shares of Preferred Stock pursuant to the authority of the
Board of Directors described above could decrease the amount of earnings and
assets available for distribution to holders of Common Stock and otherwise
adversely affect the rights and powers, including voting rights, of such holders
and may have the effect of delaying, deferring or preventing a change in control
of the Company. The Board of Directors does not currently intend to seek
stockholder approval prior to any issuance of authorized but unissued stock,
unless otherwise required by law.
WARRANTS
The Warrants are issued in registered form under, governed by and subject
to the terms of a warrant agreement (the "Warrant Agreement") between the
Company and American Securities Transfer
40
<PAGE>
& Trust, Incorporated, Denver, Colorado, as warrant agent (the "Warrant
Agent"). The following statements are brief summaries of certain provisions
of the Warrant Agreement. Copies of the Warrant Agreement may be obtained
from the Company or the Warrant Agent and have been filed with the Commission
as an exhibit to the Registration Statement of which this Prospectus is a
part. See "Additional Information."
The Company has authorized the issuance of Warrants to purchase a maximum
of 4,130,000 shares of Common Stock and has reserved an equivalent number of
shares of Common Stock for issuance upon exercise of such Warrants. No
fractional shares will be issued upon the exercise of the Warrants. The Company
will pay cash in lieu of fractional shares.
The Company may redeem the Warrants at a price of $0.001 per Warrant at any
time upon 60 days' prior written notice if the closing bid quotation of the
Common Stock on Nasdaq has been at least $10.00 on all 20 of the trading days
ending on the third day prior to the day on which notice of redemption is given.
Each Warrant entitles the holder thereof to purchase one share of Common
Stock at a price of $5.00 until February 11, 1998. The right to exercise the
Warrants will terminate at the close of business on February 11, 1998. The
Warrants contain provisions that protect the Warrant holders against dilution by
adjustment of the exercise price in certain events including, but not limited
to, stock dividends, stock splits, reclassifications or mergers. A Warrant
holder will not possess any rights as a shareholder of the Company. The shares
of Common Stock, when issued upon the exercise of the Warrants in accordance
with the terms thereof, will be fully paid and non-assessable.
At any time when the Warrants are exercisable, the Company is required to
have a current registration statement on file with the Commission and to effect
appropriate qualifications under the laws and regulations of the states in which
the holders of Warrants reside in order to comply with applicable laws in
connection with the exercise of the Warrants and the resale of the Common Stock
issued upon such exercise. So long as the Warrants are outstanding, the Company
has undertaken to file all post-effective amendments to the Registration
Statement required to be filed under the Securities Act, and to take appropriate
action under federal and state securities laws to permit the issuance and resale
of Common Stock issuable upon exercise of the Warrants. However, there can be
no assurance that the Company will be in a position to effect such action under
the federal and applicable state securities laws, and the failure of the Company
to effect such action may cause the exercise of the Warrants and the resale or
other disposition of the Common Stock issued upon such exercise to become
unlawful. The Company may amend the terms of the Warrants but only by extending
the termination date or lowering the exercise price thereof. The Company has no
present intention of amending such terms.
$40 MILLION 16.5% FIRST MORTGAGE NOTES DUE 2005
The First Mortgage Notes are a senior secured obligation of the Company,
limited in aggregate principal amount to $40,000,000, secured by all of the
current property and assets of the Company. The First Mortgage Notes bear
interest at the rate of 16.5% per annum, payable in cash semi-annually on March
31 and September 30 of each year, commencing on September 30, 1995. Interest
will be paid to the holder of the First Mortgage Notes at the close of business
on the March 15 or the September 15, as the case may be, immediately preceding
the respective interest payment date, or if no interest has yet been paid, on
the date of original issue.
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Pursuant to a Disbursement and Escrow Agreement entered into by and among
the Trustee, the Company, Bank of America Nevada and Nevada Construction
Services, Inc., the Company deposited $25,845,054 of the net proceeds derived
from the issuance and sale of the First Mortgage Notes into the Collateral
Account. The funds were disbursed on the terms provided in the Disbursement and
Escrow Agreement to pay for construction of the 16-story 451-room hotel tower
and related improvements. All funds in the Collateral Account were pledged as
security for the repayment of the First Mortgage Notes.
The Company may not redeem or prepay the First Mortgage Notes without
penalty prior to the date of their Stated Maturity. Commencing on September 30,
2001, the Company may redeem the First Mortgage Notes in whole but not in part
at a redemption price equal to (i) the remaining principal amount thereof, plus
(ii) accrued interest to the date of redemption, plus (iii) a premium equal to
the Yield Maintenance Premium.
The Indenture contains certain covenants of the Company, including
limitations on use of proceeds, limitations on restricted payments, limitations
on incurrence of additional indebtedness, limitations on restrictions on
distributions from Restricted Subsidiaries, limitations on capital stock of
Restricted Subsidiaries, limitations on transactions with Affiliates,
limitations on Liens, limitations on activities, limitations on sales of assets,
limitations on merger, sale or consolidation and maintenance of consolidated net
worth.
The foregoing summary of the First Mortgage Notes and the Indenture does
not purport to be complete and is subject to, and is qualified in its entirety
by, reference to all of the provisions of the First Mortgage Notes and the
Indenture, including the definitions contained therein of certain terms and
those terms made part of the Indenture by reference to the Trust Indenture Act
of 1939 as in effect on the date of the Indenture. Capitalized terms used
herein and not otherwise defined have the meanings ascribed to them in the
Indenture.
NOTEHOLDER WARRANTS AND PLACEMENT AGENT WARRANTS
As part of the private sale of the First Mortgage Notes, the Company issued
to the First Mortgage Notes purchaser 1,281,869 common stock purchase warrants
exercisable to purchase 1,281,869 shares of Common Stock at $6.00 per share
anytime before April 11, 2005. Further, in connection with the private
placement and sale of the First Mortgage Notes, the Company issued to the
Placement Agent and Financial Advisor (and its affiliates) an aggregate of
626,823 common stock purchase warrants exercisable to purchase 626,823 shares of
Common Stock at $6.00 per share anytime before April 11, 2000. The right to
exercise the Noteholder Warrants and the Placement Agent Warrants will terminate
at the close of business on April 10, 2005 and April 10, 2000, respectively.
The Noteholder Warrants and the Placement Agent Warrants contain provisions that
protect the holders of the Noteholder Warrants and the Placement Agent Warrants
against dilution by adjustment of the exercise price in certain events
including, but not limited to, stock dividends, stock splits, reclassifications
or mergers. A holder of the Noteholder Warrants and the Placement Agent
Warrants will not possess any rights as a shareholder of the Company. The
shares of Common Stock, when issued upon the exercise of the Noteholder Warrants
and the Placement Agent Warrants in accordance with the respective terms
thereof, will be fully paid and non-assessable. The holders of the Noteholder
Warrants and the Placement Agent Warrants have certain registration rights with
respect to their respective warrants and the Common Stock issuable upon exercise
thereof.
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REPRESENTATIVE'S OPTION
The Company sold to the Representative upon the closing of the initial
public offering, for $100.00, an option (the "Option") to purchase 160,000
shares of Common Stock and 320,000 Warrants. The Common Stock and the Warrants
to be sold to the Representative upon exercise of the Representative's Option
are the same as the Common Stock and the Warrants offered in the initial public
offering except that they have purchase prices of $7.00 per share of Common
Stock and $0.14 per Warrant. The Representative's Option is exercisable for a
36-month period expiring February 11, 1998. The exercise price and number of
shares of Common Stock and Warrants purchasable are subject to customary anti-
dilution provisions. The holders of the Representative's Option have certain
registration rights with respect to the Common Stock and the Warrants issuable
upon exercise of the Representative's Option.
STOCKHOLDER ACTION
Pursuant to the Company's Articles of Incorporation, with respect to any
act or action required of or by the holders of the Common Stock, the affirmative
vote of the holders of a majority of the issued and outstanding Common Stock
entitled to vote thereon is sufficient to authorize, affirm, ratify or consent
to such act or action, except as otherwise provided by law. Avis P. Jansen
beneficially owns approximately 38.3% of the outstanding shares of Common Stock.
Accordingly, Avis P. Jansen can likely control the voting upon all actions
required or permitted to be taken by stockholders of the Company, including the
election of directors.
POSSIBLE ANTI-TAKEOVER EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The Company's authorized but unissued capital stock consists of 15,000,000
shares of Preferred Stock and 42,820,571 shares of Common Stock. One of the
effects of the existence of authorized but unissued capital stock may be to
enable the Board of Directors to render more difficult or to 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 were to determine that a takeover proposal was
not in the Company's best interests, such shares could be issued by the Board of
Directors without stockholder approval in one or more private placements 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 acquiror or insurgent stockholder or 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. In
this regard, the Company's Articles of Incorporation grant the Board of
Directors broad power to establish the rights and preferences of the authorized
and unissued Preferred Stock, one or more series of which could be issued
entitling holders to vote separately as a class on any proposed merger or share
exchange, to convert Preferred Stock into a larger number of shares of Common
Stock or other securities, to demand redemption at a specified price under
prescribed circumstances related to a change in control, or to exercise other
rights designed to impede a takeover. As of the date of this Prospectus, the
Company has not been the subject of any takeover attempt and has no knowledge or
reason to believe that such an attempt will be made in the future.
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ARTICLES OF INCORPORATION AND BYLAWS
The Company's Bylaws grant the Board of Directors the power to amend the
Bylaws of the Company. Each director has one vote on each matter for which
directors are entitled to vote. The Articles of Incorporation and the Bylaws
also provide that (i) from time to time by resolution, the Board has the power
to decrease or increase the number of directors, provided that no decrease will
have the effect of shortening the term of any incumbent director, and (ii) the
directors will hold office until the next annual meeting of stockholders and
until their respective successors are elected and qualified. As of the date of
this Prospectus, the Board of Directors consists of five persons. These
provisions, in addition to the existence of authorized but unissued capital
stock, may have the effect, either alone or in combination with each other, of
making more difficult or discouraging an acquisition of the Company deemed
undesirable by the Board of Directors.
NEVADA LEGISLATION
Two of the Nevada general corporation provisions, the "Acquisition of
Controlling Interest" and the "Combination with Interested Stockholders"
statutes, may have the effect of delaying or making it more difficult to effect
a change in control of the Company.
ACQUISITION OF CONTROLLING INTEREST
Generally, the Acquisition of Controlling Interest statutes prohibit an
acquiror, under certain circumstances, from voting shares of a target
corporation's stock after crossing certain threshold ownership percentages,
unless the acquiror obtains the approval of the target corporation's
disinterested stockholders. There are three thresholds: one-fifth or more but
less than one-third, one-third or more but less than a majority, and a majority
or more, of the outstanding voting power. Once an acquiror crosses one of the
above thresholds, those shares acquired in an acquisition or offer to acquire in
an acquisition and acquired within the immediately preceding 90 days become
"control shares" and such control shares have only such voting rights as
approved by the disinterested stockholders. The Acquisition of Controlling
Interest statutes also provide that unless otherwise provided in the articles of
incorporation or bylaws of the target corporation, in the event control shares
are accorded full voting rights and the acquiring person has acquired a majority
or more of all voting power, all other stockholders who did 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 must notify the
dissenting 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.
COMBINATIONS WITH INTERESTED STOCKHOLDERS
In summary and subject to certain circumstances where they do not apply,
the Combination with Interested Stockholders statutes prevent a "resident
domestic corporation" from entering into a "combination" with an "interested
stockholder" unless certain conditions are met. A "resident domestic
corporation" (hereafter the "corporation") means any Nevada corporation that has
200 or more stockholders. A "combination" is broadly defined and includes,
among other things, any merger or consolidation with an "interested
stockholder," or an affiliate or associate of the "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," or
any affiliate or associate of an "interested stockholder," of assets of the
resident domestic corporation, or any subsidiary of a resident domestic
corporation: (a)
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<PAGE>
having an aggregate market value equal to 5% or more of the aggregate market
value of all the assets of the corporation, (b) having an aggregate market
value equal to 5% or more of the aggregate market value of all outstanding
shares of the corporation, or (c) representing 10% or more of the earning
power or net income of the corporation. "Interested stockholder" means the
beneficial owner, directly or indirectly, of 10% or more of the voting power
of the corporation, or an affiliate or associate of the corporation that, at
any time within five years immediately before the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the voting power
of the corporation.
Effective October 1, 1993, the corporation may not engage in a combination
with an interested stockholder within three years after the interested
stockholder acquired his shares, unless the combination or purchase of shares by
the interested stockholder is approved by the corporation's board of directors
before the interested stockholder acquired his shares. If such board of
directors' approval is not obtained, the combination may be approved after the
expiration of three years following the date of the interested stockholder's
acquisition of the shares by a majority of the disinterested stockholders, or
may be permissible if (a) the consideration to be received by all of the
disinterested holders of outstanding common shares of the corporation is at
least equal to the higher of (i) the highest price per share paid by the
interested stockholder, at a time when the interested stockholder owned five
percent or more of the outstanding voting shares, within three years immediately
preceding the date of the announcement of the combination, or within three years
immediately before, or in the transaction in which he became an interested
stockholder, whichever is higher, plus interest compounded annually, less
dividends paid, but not more than the amount of interest or (ii) the market
value per common share on the date of the announcement of the combination or the
interested stockholder's acquiring shares, plus interest compounded annually,
less dividends paid, but not more than the amount of interest, or (b) if, in the
case of shares other than common shares, the consideration to be received by all
of the disinterested holders of outstanding shares other than common shares of
the corporation is at least equal to the highest of (i) the highest price per
share paid by the interested stockholder at a time when he was the beneficial
owner of 5% or more of the outstanding voting shares of the corporation, for any
shares of that class or series of shares acquired by him within three years
immediately preceding the date of the announcement of the combination, or within
three years immediately before, or in the transaction in which he became an
interested stockholder, whichever is higher, plus interest compounded annually,
less dividends paid, but not more than the amount of interest, (ii) the highest
preferential amount to which the holders of the class or series are entitled in
the event of the voluntary liquidation of the corporation, or (iii) the market
value per share of the class or series of shares on the date of the announcement
of the combination or the interested stockholder's acquiring shares, plus
interest compounded annually, less dividends paid, but not more than the amount
of interest.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock and the Warrants is
American Securities Transfer & Trust, Incorporated, Denver, Colorado.
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SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, the Company has outstanding 7,179,429
shares of Common Stock. Excluding the 753,840 shares of Common Stock recently
acquired by Diversified, all of the Company's issued and outstanding shares of
Common Stock have either been registered for resale or issued pursuant to a
registration statement or have been held for over three years and are,
therefore, currently available for immediate sale, subject to compliance with
Rule 144 promulgated under the Securities Act ("Rule 144") by executive officers
and directors of the Company. Any future sales of substantial amounts of Common
Stock in the open market or the availability of such shares could adversely
affect the market for the Common Stock.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares of restricted
securities for at least two years, including persons who are "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the then outstanding shares
of Common Stock of the Company or (ii) the average weekly trading volume of the
Common Stock during the four calendar weeks preceding a sale by such person.
Sales under Rule 144 are also subject to certain manner-of-sale provisions,
notice requirements and the availability of current public information about the
Company. Under Rule 144, however, a person who has held shares of restricted
securities for a minimum of three years and who is not, and for three months
prior to the sale of such shares has not been, an affiliate of the Company is
free to sell such shares without regard to the volume, manner-of-sale and
certain other limitations contained in Rule 144.
REGISTRATION RIGHTS
The Representative's Option contains a "demand" right to require, on any
one occasion, that the Company file a registration statement with respect to the
Warrants and/or Common Stock (including the Common Stock issued upon exercise of
such Warrants) issued upon exercise of the Representative's Option (the
"Registrable Securities") in order to effect a public offering thereof, and
certain "piggyback" rights to require the registration of such Common Stock on
certain registration statements filed by the Company with the Commission. Such
registration rights may be transferred to any subsequent holder of the
Registrable Securities. Holders of Registrable Securities may exercise their
demand registration rights with respect to all or part of their Registrable
Securities provided, in either case, that the holders demanding registration
represent not less than a majority of the Registrable Securities then
outstanding. The Company has agreed to pay all expenses with respect to
registration pursuant to the demand registration right described above.
The 1,281,869 Noteholder Warrants and the 626,823 Placement Agent Warrants
were not registered pursuant to the Securities Act at the time of issuance.
Holders of the Noteholder Warrants and the Placement Agent Warrants have
"demand" rights to require the Company to file a registration statement with
respect to their warrants and/or Common Stock issued upon exercise of such
warrants in order to effect a public offering thereof, and certain "piggyback"
rights to require the registration of their warrants and/or Common Stock on
certain registration statements filed by the Company with the Commission. Such
registration rights may be transferred to any subsequent holder of the
Noteholder Warrants or the Placement Agent Warrants.
In connection with certain short-term debt financing, the Company issued to
(i) three nonaffiliated persons an aggregate of 50,000 common stock purchase
warrants exercisable to purchase 50,000 shares
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of Common Stock anytime on or before February 28, 2000 at an exercise price of
$6.00 per share and (ii) a nonaffiliated entity an aggregate of 150,000 common
stock purchase warrants exercisable to purchase 150,000 shares of Common Stock
from March 29, 1996 until September 29, 2000 at an exercise price of $5.625
per share. These warrants contain certain "piggyback" rights to require the
registration of their Common Stock issued upon exercise of their warrants on
certain registration statements filed by the Company with the Commission.
The Registration Agreement with Diversified gives Diversified certain
rights with respect to registering for sale under the Securities Act and
applicable state laws the shares that it may acquire pursuant to the
Transaction. The Registration Agreement gives Diversified the right, through
September 24, 2001, to demand that the Company effect up to three registrations
(two of which are to be paid by the Company and one of which will be paid by
Diversified) of such shares subject to the conditions set forth in the
Registration Agreement. In addition, Diversified has the right to have such
shares included in certain registrations under the Securities Act that the
Company may effect other than pursuant to such demand, subject to the conditions
set forth in the Registration Agreement.
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SELLING SECURITY HOLDERS
In addition to the Warrants and the shares of Common Stock underlying the
Warrants being offered by the Company by this Prospectus, the Company is
registering 54,000 shares of Common Stock and 108,000 Warrants (and the 108,000
shares of Common Stock underlying the 108,000 Warrants), as well as 200,000
shares of Common Stock beneficially owned by The Jansen Trust, on behalf of the
beneficial owners thereof (the "Selling Security Holders"). The Company has
agreed to bear all expenses (other than underwriting or selling commissions or
any fees and disbursements of counsel to the Selling Security Holders) in
connection with the registration of these securities.
The following table sets forth as of the date hereof certain information
with respect to the Selling Security Holders. None of such persons has had a
material relationship with or has held any position or office with the Company
or any of its affiliates or the Representative within the past three years,
other than The Jansen Trust. The Company will not receive any of the proceeds
from the sale of these securities.
AMOUNT OFFERED FOR ACCOUNT
OF BENEFICIAL OWNER
NAME AND ADDRESS --------------------------
OF BENEFICIAL OWNER COMMON STOCK WARRANTS
- ------------------- ------------- -----------
The Jansen Trust
3750 Las Vegas Blvd. So.
Las Vegas, NV 89109. . . . . . . . 200,000 0
Marcel Aronheim
567 Fort Washington Avenue, #6E
New York, NY 10033 . . . . . . . . 10,500 21,000
Harvey Blitz
72-19 137th Street
Flushing, NY 11367 . . . . . . . . 4,500 9,000
Gregory Fischbach
71 Audrey Road
Oyster Bay, NY 11771 . . . . . . . 7,500 15,000
Robert Holmes
71 Audrey Road
Oyster Bay, NY 11771 . . . . . . . 7,500 15,000
James Scoroposki
71 Audrey Road
Oyster Bay, NY 11771 . . . . . . . 15,000 30,000
Zeke Investment Partners (1)
569 Canterbury Lane
Berwyn, PA 19312 . . . . . . . . . 9,000 18,000
__________
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(1) Beneficially owned by Edward N. Antoian.
The sale of these securities may be effected from time to time in
transactions (which may include block transactions) in the over-the-counter
market, in negotiated transactions, through the writing of options on the Common
Stock, or a combination of such methods of sale, at fixed prices which may be
changed, at market prices prevailing at the time of sale, or at negotiated
prices. The Selling Security Holders may effect such transactions by selling
the securities directly to purchasers or to or through broker-dealers which may
act as agents or principals. Such broker-dealers may receive compensation in
the form of discounts, concessions, or commissions from the Selling Security
Holders and/or the purchasers of the securities for which such broker-dealers
may act as agents or to whom they sell as principal, or both (which compensation
as to a particular broker-dealer might be in excess of customary commissions).
The Selling Security Holders and any broker-dealers that act in connection with
the sale of the securities might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act.
With respect to the plan of distribution for the sale by the Selling
Security Holders as stated above, (a) to the extent that the securities are sold
at a fixed price or by option at a price other than the prevailing market price,
such price would need to be set forth in this Prospectus, (b) if the securities
are sold in block transactions and the purchaser wishes to resell, such
arrangements would need to be described in this Prospectus, and (c) if the
compensation paid to broker-dealers is other than usual and customary discounts,
concessions or commissions, disclosure of the terms of the transaction in this
Prospectus would be required. The Company has been advised that the Selling
Security Holders understand the prospectus delivery requirements for sales made
pursuant to this Prospectus and that, if there are changes to the stated plan of
distribution, including arrangements either individually or as a group that
would constitute an orchestrated distribution of the securities or if additional
information as noted above is needed, a post-effective amendment with current
information would need to be filed before offers are made and no sales could
occur until such amendment is declared effective.
PLAN OF DISTRIBUTION
The Company has agreed with the Representative not to solicit exercise of
the Warrants other than through the Representative. Upon exercise of the
Warrants, the Company will pay the Representative a fee of 5% of the aggregate
exercise price of Warrants exercised (a portion of which the Representative may
re-allow to another broker-dealer soliciting the exercise), if: (i) the market
price of the Common Stock on the date the Warrant is exercised is greater than
the then-exercise price of the Warrant; (ii) the exercise of the Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.;
(iii) the Warrant is not held in a discretionary account; (iv) disclosure of the
compensation arrangements was made (by delivery of this Prospectus or otherwise)
both at the time of the offering and at the time of exercise of the Warrant; and
(v) the solicitation of exercise of the Warrant is not in violation of
Rule 10b-6 promulgated under the Exchange Act.
In connection with the solicitation of Warrant exercises, unless granted an
exemption by the Commission from its Rule 10b-6, the Representative and any
other soliciting broker-dealer will be prohibited from engaging in any market-
making activities with respect to the Company's securities for the period
commencing either two or nine business days (depending on the market price of
the Common Stock) prior to any solicitation activity for the exercise of
Warrants until the later of (i) the termination of such solicitation activity,
or (ii) the termination (by waiver or otherwise) of any right which the
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Representative or any other soliciting broker-dealer may have to receive a fee
for the exercise of Warrants following such solicitation. As a result, the
Representative or any other soliciting broker-dealer may be unable to provide a
market for the Company's securities, should it desire to do so, during certain
periods while the Warrants are exercisable.
LEGAL MATTERS
The validity of the securities to be offered hereby has been passed upon
for the Company by Andrew N. Bernstein, P.C., 5445 DTC Parkway, Suite 520,
Greenwood Village, Colorado 80111, securities counsel for the Company.
EXPERTS
The financial statements of the Company as of and for the years ended
September 30, 1996 and 1995 included in this Prospectus have been audited by
Coopers & Lybrand L.L.P., independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
__________
Report Of Independent Accountants
Financial Statements:
Balance Sheets As Of September 30, 1996 And 1995
Statements Of Income (Loss) For The Years Ended September 30, 1996 And
1995
Statements Of Cash Flows For The Years Ended September 30, 1996 And 1995
Statements Of Shareholders' Equity For The Years Ended September 30, 1996
And 1995
Notes To Financial Statements
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
__________
Board of Directors and Shareholders
Boardwalk Casino, Inc.
Las Vegas, Nevada
We have audited the accompanying balance sheets of Boardwalk Casino, Inc. as of
September 30, 1996 and 1995, and the related statements of income (loss),
shareholders' equity and cash flows for the years ended September 30, 1996 and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Boardwalk Casino, Inc. as of
September 30, 1996 and 1995, and the results of its operations and its cash
flows for the years ended September 30, 1996 and 1995 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Las Vegas, Nevada
November 27, 1996, except for
Notes 6 and 7 as to which the
date is January 6, 1997
F-2
<PAGE>
BOARDWALK CASINO, INC.
BALANCE SHEETS
September 30, 1996 And 1995
__________
A S S E T S:
1996 1995
------------ -----------
Current assets:
Cash and cash equivalents $4,772,549 $3,650,236
Restricted cash equivalents, in escrow accounts - 1,464,008
Receivables, net of allowance for doubtful'
accounts of $17,105 (1996) and $5,400 (1995) 439,857 31,087
Inventory 73,719 65,551
Prepaid expenses 573,964 433,962
------------ -----------
Total current assets 5,860,089 5,644,844
------------ -----------
Property and equipment, net of accumulated
depreciation of $5,705,685 (1996) and
$3,340,364 (1995) 55,486,285 34,132,377
------------ -----------
Other assets:
Restricted cash equivalents, in escrow accounts - 16,459,115
Deferred costs, net of accumulated amortization
of $239,436 (1996) and $79,714 (1995) 1,645,090 1,379,993
Other 179,485 77,682
------------ -----------
Total other assets 1,824,575 17,916,790
------------ -----------
Total assets $63,170,949 $57,694,011
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $1,281,657 $1,150,830
Construction accounts payable 171,283 2,904,205
Accrued expenses 2,547,615 765,434
Accrued interest expense - 2,600,297
Notes payable - 2,589,628
Current portion of obligations under capital
leases 3,115,522 861,616
------------ -----------
Total current liabilities 7,116,077 10,872,010
------------ -----------
Long-term debt 40,909,523 35,731,451
Obligations under capital leases, less
current portion 3,400,234 1,474,041
------------ -----------
Total liabilities 51,425,834 48,077,502
------------ -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value; 15,000,000
shares authorized; none issued - -
Common stock, $.001 par value; 15,000,000 shares
authorized; 7,179,429 (1996) and 6,077,800
(1995) shares issued and outstanding 7,179 6,078
Additional paid-in capital 22,435,083 15,893,784
Accumulated deficit (10,697,147) (6,283,353)
------------ -----------
Total shareholders' equity 11,745,115 9,616,509
------------ -----------
Total liabilities and shareholders' equity $ 63,170,949 $57,694,011
------------ -----------
------------ -----------
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
BOARDWALK CASINO, INC.
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
__________
<TABLE>
1996 1995
---- ----
<S> <C> <C>
Revenues:
Casino $16,897,527 $ 2,128,345
Rooms 7,224,324 2,824,534
Food and beverage 4,031,278 1,513,466
Other 837,895 138,607
----------- -----------
Gross revenue 28,991,024 6,604,952
Less promotional allowances (1,079,467) (280,502)
----------- -----------
27,911,557 6,324,450
----------- -----------
Costs and expenses:
Casino 10,787,868 2,415,562
Rooms 3,460,334 1,675,696
Food and beverage 4,168,259 1,745,572
Other 173,138 64,032
Selling, general and administrative 5,174,502 2,209,374
Depreciation and amortization 2,525,044 840,168
----------- -----------
26,289,145 8,950,404
----------- -----------
Income (loss) from operations 1,622,412 (2,625,954)
----------- -----------
Other (income) expense:
Interest income (395,416) (653,740)
Interest expense 7,874,115 3,463,556
Interest capitalized (1,442,493) (1,243,558)
Loss on disposal of property and equipment - 1,100,585
----------- -----------
6,036,206 2,666,843
----------- -----------
Income (loss) before extraordinary item (4,413,794) (5,292,797)
Extraordinary item - loss on early retirement of debt
(no current tax benefit available)
- (44,029)
----------- -----------
Net income (loss) $(4,413,794) $(5,336,826)
----------- -----------
----------- -----------
Income (loss) per share of common stock:
Income (loss) before extraordinary item $ (.70) $ (.90)
Extraordinary item - loss on early retirement of debt - (.01)
----------- -----------
Net income (loss) per share of common stock $ (.70) $ (.91)
----------- -----------
----------- -----------
Weighted average common shares outstanding 6,292,287 5,902,033
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
BOARDWALK CASINO, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
__________
<TABLE>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $( 4,413,794) $ (5,336,826)
------------ ------------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,525,044 840,168
Provision for doubtful accounts 11,705 -
Loss on disposition of property and equipment - 1,100,585
Amortization of original issue discount 462,472 77,223
Extraordinary loss on early retirement of debt - 44,029
Changes in operating assets and liabilities:
(Increase) decrease in receivables (420,475) 18,737
(Increase) in inventory (8,168) (29,149)
(Increase) in prepaid expenses (197,331) (8,685)
Increase in accounts payable, net of amounts
for capital expenditures 130,827 913,353
Increase in accrued expenses 1,782,181 288,199
(Decrease) increase in accrued interest payable (2,600,297) 2,589,864
------------ ------------
Net cash (used in) provided by operating activities (2,727,836) 497,498
------------ ------------
Cash flows from investing activities:
Capital expenditures, net of amounts in accounts payable (21,209,818) (20,546,214)
Net (additions) deductions to restricted cash equivalents
in escrow accounts 17,923,123 (17,923,123)
(Increase) in deferred costs (93,812) -
(Increase) decrease in other assets (44,474) 18,551
------------ ------------
Net cash used by investing activities (3,424,981) (38,450,786)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable borrowings 3,429,611 2,515,600
Principal payments of notes payable (6,303,639) (1,196,593)
Proceeds from long-term debt borrowings,
net of issuance costs 4,668,993 35,272,021
Principal payments of long-term debt - (4,644,818)
Principal payments of capital lease obligations (1,062,235) (568,699)
Proceeds from issuance of common stock and
warrants, net of issuance costs 6,542,400 5,365,046
------------ ------------
Net cash provided by financing activities 7,275,130 36,742,557
------------ ------------
Net increase (decrease) in cash
and cash equivalents 1,122,313 (1,210,731)
Cash and equivalents, beginning of period 3,650,236 4,860,967
------------ ------------
Cash and equivalents, end of period $ 4,772,549 $ 3,650,236
------------ ------------
------------ ------------
Supplemental cash flow information:
Cash paid for interest $ 10,474,412 $ 796,471
------------ ------------
------------ ------------
Schedule of non-cash investing and financing activities:
Property and equipment acquisitions included
in accounts payable $ 171,283 $ 2,904,205
------------ ------------
------------ ------------
Capitalized lease obligations incurred $ 5,242,336 $ 2,262,050
------------ ------------
------------ ------------
Prepaid insurance financed by note payable $ - $ 94,474
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
BOARDWALK CASINO, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SPETEMBER 30, 1996 AND 1995
_____________
<TABLE>
Common Stock
------------------------- Additional
Shares Paid-In Accumulated
Outstanding Amount Capital Deficit Total
----------- ------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balances, September 30, 1994 5,915,000 $5,915 $10,528,901 $ (946,527) $ 9,588,289
Issuance of warrants to purchase
common stock in conjunction
with bridge loans - - 374,400 - 374,400
Issuance of warrants to purchase
common stock in conjunction with
BCI Notes, net of issuance costs - - 4,177,366 - 4,177,366
Exercises of warrants, net of
issuance costs 162,800 163 813,117 - 813,280
Net loss - - - (5,336,826) (5,336,826)
--------- ------ ----------- ------------ -----------
Balances, September 30, 1995 6,077,800 6,078 15,893,784 (6,283,353) 9,616,509
--------- ------ ----------- ------------ -----------
Issuance of warrants to purchase
common stock - - 51,617 - 51,617
Issuance of common stock, net of
issuance costs 721,429 721 4,639,107 - 4,639,828
Exercises of warrants, net of
issuance costs 380,200 380 1,850,575 - 1,850,955
Net loss - - - (4,413,794) (4,413,794)
--------- ------ ----------- ------------ -----------
Balances, September 30, 1996 7,179,429 $7,179 $22,435,083 $(10,697,147) $11,745,115
--------- ------ ----------- ------------ -----------
--------- ------ ----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
__________
1. Summary Of Significant Accounting Policies:
NATURE OF OPERATIONS
Boardwalk Casino, Inc. ("BCI" or the "Company") is a Nevada corporation and
was formed in July 1993 for the purpose of operating a casino and a hotel
(collectively, the "Boardwalk Hotel and Casino") in Las Vegas, Nevada.
CASINO REVENUE
In accordance with industry practice, BCI recognizes as casino revenues the
net win from gaming activities, which is the difference between gaming wins
and losses.
PROMOTIONAL ALLOWANCES
The retail value of hotel accommodations, food and beverage provided to
customers without charge is included in gross revenues and then deducted as
promotional allowances to arrive at net revenues. The estimated costs of
providing such promotional allowances have been classified as gaming expenses
through interdepartmental allocations, as follows:
Year Ended September 30,
------------------------
1996 1995
---------- --------
Hotel $ 79,615 $ -
Food and beverage 923,362 359,042
---------- --------
$1,002,977 $359,042
---------- --------
---------- --------
CASH EQUIVALENTS AND CONCENTRATION OF CREDIT RISK
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. The Company's restricted
cash was invested in shares of the Pacific Horizon Treasury Fund which is
collateralized by securities issued by the United States Government. In
addition, approximately $2,534,000 of the Company's unrestricted cash is also
invested in shares of the Pacific Horizon Treasury Fund. At September 30,
1996, the Company has approximately $3,556,000 on deposit with a single
financial institution in excess of federally insured limits.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method.
Continued
F-7
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
1. Summary Of Significant Accounting Policies, Continued:
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method. Estimated useful lives for property and equipment
are 10 to 40 years for buildings and improvements and 5 to 7 years for
furniture and equipment. Accelerated depreciation methods are generally used
for income tax purposes. Repairs and maintenance are charged to expense when
incurred.
A gain or loss is recognized upon disposal of property and equipment, and the
asset and related accumulated depreciation and amortization amounts are removed
from the accounts.
PREOPENING COSTS
Preopening costs associated with the expansion of the hotel-casino are expensed
as incurred.
DEFERRED COSTS
Costs associated with the issuance of debt are deferred and amortized over the
life of the related indebtedness using the effective interest method.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
Under SFAS 109, deferred tax assets and liabilities are recognized for the
expected future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under SFAS 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment
date.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of common
stock outstanding during each period. Warrants and options to purchase common
stock which were issued in 1996, 1995 and 1994 were excluded from the
calculation of earnings (loss) per share, as their inclusion would have been
anti-dilutive (by reducing the loss per share).
STOCK-BASED COMPENSATION
In October 1995, Statement of Financial Accounting Standards No. 123 ("SFAS
123") was issued. SFAS 123 established fair value-based financial accounting
and reporting standards for all transactions in which a company acquires goods
or services by issuing its equity instruments or by incurring a liability to
its supplier in amounts based on the price of its common stock or other equity
instruments.
Continued
F-8
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
1. Summary Of Significant Accounting Policies, Continued:
STOCK-BASED COMPENSATION, Continued
SFAS 123 provides that companies may continue to account for employee stock
compensation plans using the accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
Companies that elect not to adopt the fair-value based accounting approach
under SFAS 123 for employee stock compensation plans must nevertheless comply
with certain disclosure requirements and disclose pro forma net income and
earnings per share as if such approach under SFAS 123 had been adopted.
The disclosure requirements of SFAS 123 are effective for financial statements
for fiscal years beginning after December 15, 1995 and the pro forma disclosure
requirements are effective for stock awards granted in the first fiscal year
beginning after December 15, 1994.
The Company plans to utilize the disclosure option allowed by SFAS 123 and
continue to account for stock-based compensation under APB 25.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates, particularly with
respect to those matters discussed in Notes 2 and 3.
RECLASSIFICATIONS
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 presentation.
2. Casino Expansion And Related Construction Obligations:
The Company is engaged in a three-phase project to expand and renovate its
existing hotel and casino facilities (the "Expansion").
Phase one of the Expansion was the renovation and refurbishment of 202
previously existing hotel rooms, which was completed in May 1994 at an
approximate cost of $2,100,000.
Phase two of the Expansion was the renovation of the casino by expanding the
casino floor space from 15,000 square feet to 33,000 square feet, and
increasing the number of slot machines and table games. In addition, the
renovated casino also features a full-service race and sports book. Phase two
of the Expansion was substantially completed in September 1995 at an
approximate cost of $13,924,000.
Continued
F-9
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
2. Casino Expansion And Related Construction Obligations, Continued:
Phase three of the Expansion is the development and construction of a new
16-story 451-room hotel tower, the completion of 27,000 square feet of space
on the second floor of the casino which is to provide a buffet area, meeting
rooms and entertainment facilities and the construction of two parking garages.
A general contractor has been engaged for the construction activities relating
to phase three of the Expansion. Completion of the hotel tower portion of
phase three of the Expansion was substantially completed in May 1996 at an
approximate cost of $19,334,000. Of the total estimated construction cost of
the second floor of the casino, the Company has expended approximately
$4,171,000 as of September 30, 1996, leaving an unexpended balance of
approximately $3,600,000. The balance of the construction will be financed
using existing cash, operating cash flow and cash available from other sources,
as more fully described in Note 3.
3. Operating Results, Financial Condition And Management's Plans:
The results of operations for 1996 and 1995 reflect the impact of
construction-related activity which restricted customer access to the Company's
facilities, and thus negatively impacted operating revenues and operating
results during those years. In addition, in April 1995, the Company completed
a $40 million debt financing of the BCI Notes (as more fully described in Note
6), which resulted in an annual debt service requirement, excluding principal,
of approximately $6,600,000. The Company had no significant source of cash
flow during 1996 and 1995 prior to the opening of the new hotel tower, to
service the increased interest obligation related to the BCI Notes. The
Company raised funds to meet its interest and other cash obligations in 1996
and 1995 through private placement equity offerings and through short-term
notes payable and bridge loans. As a result of these developments, Boardwalk
Casino, Inc. incurred significant interest expense and net losses of
approximately $4,414,000 and $5,337,000 in 1996 and 1995, respectively, and has
a working capital deficiency of approximately $1,256,000 at September 30, 1996.
Management plans to generate cash from operations based upon the recent
completion and opening in 1996 of the hotel and casino facilities under its
expansion program.
The Company has arranged for up to $4,000,000 of available working capital
borrowings which has been made available by a director and a group of other
private investors who have provided other short-term financing to the Company
during 1996 and 1995. Such uncollateralized borrowings are available to the
Company on an as-needed basis through December 31, 1997 on terms substantially
similar to those which had been made available to the Company during 1996.
Management believes that the combination of existing cash, cash flows from
operations and the available borrowing capacity are sufficient to meet the
Company's obligations as they become due during fiscal 1997.
Continued
F-10
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENT, CONTINUED
__________
4. Property And Equipment:
Property and equipment consists of the following:
September 30,
--------------------------
1996 1995
----------- -----------
Land and improvements $ 3,042,769 $ 2,478,414
Buildings and improvements 38,736,144 17,582,058
Gaming equipment 6,163,617 4,808,135
Furniture and other equipment 8,077,178 3,830,737
Construction-in-progress 5,172,262 8,773,397
----------- -----------
61,191,970 37,472,741
Less: accumulated depreciation (5,705,685) (3,340,364)
----------- -----------
$55,486,285 $34,132,377
----------- -----------
----------- -----------
Construction-in-progress at September 30, 1996 is comprised of construction of
phase three of the Company's expansion plan, as more fully described in Note
2. During 1995, as part of the refurbishment of the existing facilities, the
Company disposed of certain property and equipment resulting in a loss of
approximately $1,101,000.
5. Leases:
The Company has entered into capital lease agreements whereby the Company
leases various equipment under two-, three-, five-, seven- and twenty-year
leases which expire at various dates through 2015.
Capital lease obligations consists of the following:
<TABLE>
September 30,
------------------------
1996 1995
----------- ----------
<S> <C> <C>
Capital lease obligation, interest rate of prime plus 3%, monthly
principal and interest payments of $107,267 through August 1997,
collateralized by slot equipment $ 1,519,684 $1,602,000
Capital lease obligation, with effective interest rate of 12.50%
due in monthly installments of $41,817, including interest, through
November 1998, collateralized by casino and hotel equipment 948,248 -
Capital lease obligation, interest rate of 10%, semi-annual
principal and interest payments of $20,721 through August 2015,
uncollateralized 337,988 355,556
Capital lease obligation, with effective interest rate of 12.50%
due in monthly installments of $23,418 through May 1999,
collateralized by slot equipment 600,732 -
Continued
F-11
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENT, CONTINUED
__________
5. Leases, Continued:
September 30,
------------------------
1996 1995
----------- ----------
<S> <C> <C>
Capital lease obligation, with effective interest rate of 12.50%
due in monthly installments of $61,794 through September 1999,
collateralized by hotel furniture, fixtures and equipment $ 1,822,938 -
Capital lease obligations with effective interest rates ranging
from 9.36% to 12.90%, due in aggregate monthly installments of
$7,619, and ending at various times in 2001, collateralized by
phone equipment 346,070 $ 130,198
Capital lease obligation, with effective interest rate of 12.50%
due in monthly installments of $9,083 through October 2000,
collateralized by signage equipment 347,222 -
Other 592,874 247,903
----------- ----------
6,515,756 2,335,657
Less amounts classified as current (3,115,522) (861,616)
----------- ----------
$ 3,400,234 $1,474,041
----------- ----------
----------- ----------
</TABLE>
Property and equipment include the following property leased under capital
leases as of September 30, 1996 and 1995:
1996 1995
----------- ----------
Cost of equipment under capital leases $ 7,001,501 $1,961,088
Less, accumulated depreciation (1,018,864) (30,986)
----------- ----------
$ 5,982,637 $1,930,102
----------- ----------
----------- ----------
Continued
F-12
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENT, CONTINUED
__________
5. Leases, Continued:
Future minimum lease payments, by year and in the aggregate, under capital
leases with initial or remaining terms of one year or more consist of the
following at September 30, 1996.
1997 $3,676,551
1998 1,909,832
1999 1,289,360
2000 368,727
2001 134,706
Thereafter 580,188
-----------
Total minimum lease payments 7,959,364
Less amount representing interest (1,443,608)
-----------
Present value of minimum lease payments 6,515,756
Less current portion (3,115,522)
-----------
Long-term obligations under capital leases $ 3,400,234
-----------
-----------
The Company leases as lessor certain retail space in its casino facilities
under operating lease agreements. The leases are short-term and renewable
based upon mutual agreement between the Company and the lessee. Rental income
under these agreements totaled $230,566 and $12,000 for the years ended
September 30, 1996 and 1995, respectively.
6. Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
September 30,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
16.50% First Mortgage Notes due March 31, 2005 (the BCI Notes) with
interest payable semi-annually, net of unamortized original issue
discount of $4,090,477 (1996) and $4,268,549 (1995) (see below) $35,909,523 $35,731,451
Eurodollar rate plus 2% convertible subordinated note payable due
September 23, 1998 with interest payable quarterly (see below) 5,000,000 -
----------- -----------
$40,909,523 $35,731,451
----------- -----------
----------- -----------
</TABLE>
Continued
F-13
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENT, CONTINUED
__________
6. Long-Term Debt, Continued:
On April 11, 1995, the Company completed a private placement of the BCI Notes.
The offering generated net proceeds of approximately $30,652,000 (after
deducting debt issue costs and approximately $4,620,000 used to repay
principal and accrued interest on existing indebtedness). The BCI Notes are
collateralized by a first mortgage on substantially all of the assets of the
Company, including the expansion project. The Company recorded an original
issue discount of $4,345,772 in connection with the BCI Notes, related to the
issuance of 1,908,692 warrants to purchase common stock (exercisable at $6.00
per share), based on the estimated market value of the warrants at the date of
issuance. Terms of the warrants are more fully described in Note 7.
The indenture governing the BCI Notes (the "Indenture") limited the use of the
net proceeds from the offering to fund the cost of the hotel and casino
expansion. The proceeds were placed in escrow with a trustee pending
draw-downs for qualifying project expenditures and were classified as
restricted cash equivalents, in escrow accounts, in the accompanying financial
statements. All of the proceeds from the BCI Notes have been used as of
September 30, 1996. The BCI Notes are not subject to mandatory redemption,
except upon a change of control, decline in net worth, or certain asset sales,
all as defined in the Indenture. The Company has the option to redeem the BCI
Notes, beginning after September 2001 at a premium, as defined in the
Indenture.
The Indenture contains covenants that, among other things, limit the ability
of the Company to pay dividends or incur additional indebtedness. Additional
indebtedness is limited to $5,000,000 of additional uncollateralized debt
issuances and $7,000,000 of equipment leases of which the recourse portion
cannot exceed $2,000,000. As of September 30, 1996, the Company had equipment
leases with recourse totaling approximately $6,178,000. In December 1996, the
terms of the Indenture were modified to allow for an increase in the
$2,000,000 recourse portion of the Indenture for the additional obligations
entered into during 1996.
The Indenture also requires the Company to maintain a minimum net worth. The
net worth can be no less than the sum of $6,000,000 plus the proceeds from the
sale of common stock and 50% of the net income of the Company for all periods
beginning after April 1, 1995 (any net loss during that period may not be
deducted for purposes of the calculation).
In September 1996, the Company executed a $5,000,000 subordinated, convertible
promissory note collateralized by a second deed of trust on the assets of the
Company. Interest is payable quarterly at the applicable Eurodollar rate plus
2% with principal due September 23, 1998 if not converted by the noteholder.
Prior to payment in full by the Company and subject to regulatory approval,
the noteholder may convert the unpaid principal balance of the note into
common shares of the Company. The number of shares into which the note may be
converted shall be determined by dividing the unpaid principal balance by
$7.50.
Continued
F-14
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENT, CONTINUED
__________
6. Long-Term Debt, Continued:
Maturities of BCI's long-term debt are as follows:
Year Ending
September 30,
-------------
1997 $ -
1998 5,000,000
1999 -
2000 -
2001 -
Thereafter 40,000,000
-----------
$45,000,000
-----------
-----------
7. Shareholders' Equity:
A summary of the Company's equity transactions and issuances of warrants to
purchase common stock are summarized in the following paragraphs. At
September 30, 1996 and 1995, the Company had the following warrants to
purchase shares of common stock outstanding:
<TABLE>
Warrants Issued Warrants Issued
Warrants Issued In Connection In Connection
1994 Bridge In Connection With Issuance With Private
Financing With Notes Of BGI Placement
And IPO (a) Payable (b) Notes (c) Offering (d) Total
----------- --------------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Exercise price $5.00 $5.625, $6.00 $6.00 $7.50
and $8.00
Expiration date Feb. 1998 Sept. 2000 to April 2000 to June 2000
Sept. 2005 Apr. 1, 2005
Balances, September 30, 1994 4,130,000 - - - 4,130,000
Issued - 208,000 1,908,692 - 2,116,692
Exercised (162,800) - - - (162,800)
--------- ------------- -------------- --------- ---------
Balances, September 30, 1995 3,967,200 208,000 1,908,692 - 6,083,892
Issued - - - 75,000 75,000
Exercised (380,200) - - - (380,200)
--------- ------------- -------------- --------- ---------
Balances, September 30, 1996 3,587,000 208,000 1,908,692 75,000 5,778,692
--------- ------------- -------------- --------- ---------
--------- ------------- -------------- --------- ---------
</TABLE>
Continued
F-15
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENT, CONTINUED
__________
7. Shareholders' Equity, Continued:
(a) 1994 bridge financing, common stock offering and warrant exercises:
In 1994 the Company issued 450,000 warrants to purchase its common stock
in connection with a bridge financing (the "Bridge Warrants"). Each
Bridge Warrant entitles the holder thereof to purchase one share of
common stock at an exercise price of $5.00 per share and expires in
February 1998. The Bridge Warrants contain provisions that protect the
bridge warrantholders against dilution by adjustment of the exercise
price in certain events including, but not limited to, stock dividends,
stock splits, reclassifications or mergers. Upon completion of the
initial public offering of the Company's common stock in February 1994,
the Bridge Warrants were automatically converted into warrants identical
to the Offering Warrants (described below). A bridge warrantholder does
not possess any rights as a shareholder of the Company.
The Company may redeem the Bridge Warrants at a price of $0.001 per
Bridge Warrant upon 60 days' prior written notice if the closing bid
quotation of the common stock has been at least $10.00 on all 20 of the
trading days ending on the third day prior to the day on which notice of
redemption is given.
On February 11, 1994, the Company completed an initial public offering of
its common stock. The Company issued 1,840,000 shares of common stock at
a selling price of $5.00 per share and issued 3,680,000 warrants (the
"Offering Warrants") at a selling price of $0.10 per warrant. The
Company received net proceeds of $7,706,109 for the stock and warrants,
after deducting underwriters' commissions and offering expenses.
Each Offering Warrant entitles the holder thereof to purchase one share
of common stock at a price of $5.00 per share until February 11, 1998, at
which time the Offering Warrant expires. The Offering Warrants contain
provisions that protect the warrantholders against dilution by adjustment
of the exercise price in certain events including, but not limited to,
stock dividends, stock splits, reclassifications or mergers. A
warrantholder does not possess any rights as a shareholder of the Company.
The Company may redeem the Offering Warrants at a price of $0.001 per
Warrant upon 60 days' prior written notice if the closing bid quotation
of the common stock has been at least $10.00 on all 20 of the trading
days ending on the third day prior to the day on which notice of
redemption is given.
In connection with the offering, the Company also sold the underwriter,
for $100, an option (the "Option") to purchase 160,000 shares of common
stock and 320,000 Warrants. The Option has an exercise price of $7.00
per share of common stock and $0.14 per Warrant (140% of the respective
original offering prices). The Option is exercisable for a 36-month
period, commencing on February 11, 1995 and expiring on February 11, 1998.
During 1996 and 1995, respectively, 380,200 and 162,800 warrants to
purchase the Company's common stock were exercised for an equal number of
shares of the Company's common stock. All of the warrants had an
exercise price of $5.00, resulting in net proceeds to the Company of
$1,850,955 and $813,280 after issuance costs in 1996 and 1995,
respectively.
Continued
F-16
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENT, CONTINUED
7. Shareholders' Equity, Continued:
(b) 1995 bridge financing transactions:
The Company issued 50,000 warrants to purchase its common stock in
connection with $1,000,000 of bridge loans, which loans have been repaid.
Each warrant entitles the holder thereof to purchase one share of common
stock at an exercise price of $6.00 per share. The warrants expire in
February 2000. The warrants contain provisions that protect the
warrantholders against dilution by adjustment of the exercise price in
certain events including, but not limited to, stock dividends, stock
splits, reclassifications or mergers. A warrantholder does not possess
any rights as a shareholder of the Company.
The Company issued 150,000 warrants to purchase its common stock in
connection with a 10% note payable issued in 1995, which note has been
repaid. Each warrant entitles the holder thereof to purchase one share
of common stock at an exercise price of $5.625 per share. The warrants
are exercisable between March 1996 and September 2000. The warrants
contain provisions that protect the warrantholders against dilution by
adjustments of the exercise price in certain events including, but not
limited to, stock dividends, stock splits, reclassifications or mergers.
A warrantholder does not possess any rights as a shareholder of the
Company.
The Company issued 8,000 warrants to purchase its common stock in
connection with a $400,000, 12% note payable issued in 1995, which note
has been repaid. Each warrant entitles the holder thereof to purchase one
share of common stock at an exercise price of $8.00 per share. The
warrants expire in September 2005. A warrantholder does not possess any
rights as a shareholder of the Company.
(c) BCI Notes offering:
As discussed in Note 6, the Company issued 1,908,692 warrants to purchase
its common stock in connection with the BCI Notes. Each warrant entitles
the holder thereof to purchase one share of common stock at an exercise
price of $6.00 per share and 626,823 and 1,281,869 of the warrants expire
in April 2000 and April 2005, respectively. The warrants contain
provisions that protect the warrantholders against dilution by adjustment
of the exercise price in certain events including, but not limited to,
stock dividends, stock splits, reclassifications or mergers. A
warrantholder does not possess any rights as a shareholder of the Company.
(d) 1996 private placement equity offering:
During 1996, the Company completed a private placement offering in which
it issued 150,000 shares of its common stock for $6.25 per share. In
connection with the issuance of the common stock, the Company also sold
75,000 warrants to purchase common stock for $.25 per warrant. Each
warrant entitles the holder thereof to purchase one share of common stock
at a price of $7.50 per share until June 2000, at which time the warrant
expires. The Company received net proceeds of $956,250 for the issuance
of the stock and warrants.
F-17
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENT, CONTINUED
__________
7. Shareholders' Equity, Continued:
SEPTEMBER 1996 PRIVATE PLACEMENT EQUITY OFFERING
In September 1996, the Company completed a private placement offering of
571,429 shares of its common stock at a selling price of $7.00 per share. The
Company received net proceeds of $3,735,195 for the stock, after deducting
offering expenses.
INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
In December 1996, the Company's shareholders voted to amend the Company's
articles of incorporation to increase the number of authorized shares of common
stock from 15,000,000 to 50,000,000.
STOCK OPTION PLANS
On April 26, 1994, the Board of Directors adopted (and on March 15, 1995 the
shareholders approved) the 1994 Stock Compensation Plan (the "1994 Plan"). The
1994 Plan provides that incentive stock options and nonqualified stock options
may be granted to certain officers, directors (other than Outside Directors),
employees and advisors of the Company or its subsidiaries, if any, selected by
the Compensation Committee.
The Company has granted a total of 745,000 options exercisable at prices
ranging from $6.25 to $9.00 expiring between April 26, 1999 and September 26,
2005. The options were granted at exercise prices equal to the fair market
value (or in the case of options granted to the president and majority
shareholder at 110% of market value) as of the date of grant. The options vest
in 25% increments annually, subject to acceleration upon a change in control of
the Company, as defined in the 1994 Plan agreement.
The grants of 450,000 of the options described above were subject to
shareholder approval of an increase in the authorized number of shares reserved
for issuance under the 1994 Plan to 2,000,000 shares. Such approval was
received during 1996.
OUTSIDE DIRECTORS STOCK OPTION PLAN
On April 26, 1994, the Board of Directors adopted (and on March 15, 1995 the
shareholders approved) the Outside Directors Stock Option Plan (the "Plan").
The Company has granted nonqualified options to three of its directors to
purchase 100,000 shares of the Company's common stock. The options are
exercisable at prices of $6.75 and $6.25 expiring between April 26, 2004 and
April 26, 2005. The foregoing options were granted at an exercise price equal
to the fair market value of the common stock as of the date of grant. The
options vest in 25% increments annually, subject to acceleration upon a change
in control of the Company, as defined in the Plan agreement.
Continued
F-18
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
8. Income Taxes:
The following is a reconciliation of income taxes at the Federal statutory rate
with income taxes recorded by the Company:
1996 1995
----------- -----------
Tax benefit computed at federal
statutory income tax rate (35%) $(1,545,000) $(1,868,000)
Unrecognized tax benefit from operating losses 1,494,000 1,852,000
Other, net 51,000 6,000
----------- -----------
Total income tax provision (benefit) $ - $ -
----------- -----------
----------- -----------
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
consist of the following at September 30, 1996 and 1995:
1996 1995
----------- -----------
DEFERRED TAX ASSETS:
Federal net operating loss carryforward $ 3,524,000 $ 2,051,000
Write-off of existing casino facilities
during expansion - 307,000
Gaming tax assessment 175,000 -
Other 30,000 48,000
Total deferred tax assets 3,729,000 2,406,000
----------- -----------
DEFERRED TAX LIABILITIES:
Depreciation (674,000) (490,000)
----------- -----------
Total deferred tax liabilities (674,000) (490,000)
----------- -----------
Valuation allowance (3,055,000) (1,916,000)
----------- -----------
Net deferred taxes $ - $ -
----------- -----------
----------- -----------
No federal income tax provision (benefit) has been recorded in the 1996 and
1995 financial statements, and the Company operates wholly in Nevada and,
therefore, has no state income tax liability.
As of September 30, 1996, the Company had a federal net operating loss
carryforward of approximately $10,568,000 which expires between 2009 and 2011.
9. Commitments And Contingencies:
The Company has pending certain legal actions and claims incurred in the normal
course of business and is actively pursuing the defense thereof. In the
opinion of management, these actions and claims are either without merit or are
covered by insurance and will not have a material adverse effect on the
Company's financial position, results of operations or cash flows.
Continued
F-19
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
9. Commitments And Contingencies, Continued:
HOLIDAY INN-REGISTERED TRADEMARK- FRANCHISE AGREEMENT
The Company was granted a Holiday Inn-Registered Trademark- ten-year franchise
license on June 16, 1994 after completing renovation of its existing hotel,
consisting of 126 rooms in a high-rise tower and 75 annex rooms. The agreement
required an application fee of $77,500, (which is reflected in other assets and
is being amortized over the life of the agreement). The agreement provides
that the Company will pay to Holiday Inn-Registered Trademark- (i) a monthly
royalty of 5% of the gross rooms revenues; (ii) a "marketing contribution" of
1.5% of the gross rooms revenues; (iii) a "reservation contribution" of 1.0% of
the gross rooms revenues; and (iv) a monthly Holidex fee of $6.43 for each
guest room. The license granted under the agreement expires ten years from the
date of the opening of the hotel under the "Holiday Inn" system, subject to
earlier termination as set forth therein.
GAMING TAX ASSESSMENT
During the last two quarters of 1996, based on the advice of legal counsel, the
Company accrued a total loss contingency of $500,000 related to an anticipated
gaming tax assessment from the Nevada Gaming Control Board ("NGCB"). The NGCB
has audited the Company's gaming tax returns in 1996 and the Company believes
it is probable that the NGCB will determine that the Company has improperly
deducted certain promotional wagers by patrons in calculating gross revenue for
gaming tax purposes. The Company plans to appeal an assessment; however, the
likelihood of a successful outcome cannot be determined.
10. Related-Party Transactions:
OFFICE SPACE LEASE
During 1996 and 1995, the Company leased office space and storage facilities
for its corporate offices from the majority shareholders for approximately
$8,375 per month. For the years ended September 30, 1996 and 1995, rent
expense under this lease was $101,375 and $43,874, respectively.
Effective October 1, 1996, the Company amended the lease and the monthly rental
increased to approximately $70,000 per month. The lease term is for two years
and allows the Company to use the facilities for any purpose. The Company has
options to extend the lease up to an additional 28 years. The lease agreement
provides the Company with the first right of refusal to purchase the land and
building at their fair value should the shareholders decide to sell them. The
lease agreement also entitles the Company to the rental income from the
existing lessees during the lease term. The existing lessees are on short-term
renewable leases with current rents totaling approximately $39,000 per month.
RECEIVABLE FROM HOLIDAY GIFTS, INC.
During the period from October 1, 1993 through February 11, 1994, the Company
paid certain overhead and general and administrative expenses on behalf of
Holiday Gifts, Inc. ("HGI"), a company affiliated through common ownership. As
of September 30, 1996 and 1995, the receivable balance was $3,499 and $12,682,
respectively.
Continued
F-20
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
10. Related-Party Transactions, Continued:
RECEIVABLE FROM HOLIDAY GIFTS, INC., Continued
The Company leases retail space to HGI. During the years ended September 30,
1996 and 1995, rental income from HGI was $11,000 and $12,000, respectively.
Effective October 1, 1996, rental income from HGI increased to $5,000 per
month.
11. Bridge Loans And Related Extraordinary Losses:
1995 BRIDGE LOANS
In February 1995, the Company, in a private placement offering, completed the
issuance of 12% promissory notes aggregating $1,000,000. In connection with
the financing, the Company issued lenders 50,000 warrants to purchase common
stock (exercisable at $6.00 per share). These notes were repaid in April 1995
from the proceeds of the BCI Notes.
Original issue discount of these notes was attributable to the 50,000 warrants
and totaled $90,000 of which $25,847 was amortized through April 1995. The
balance of the original issue discount ($64,153) was written-off upon early
extinguishment of the debt, and was treated as an extraordinary loss.
EARLY EXTINGUISHMENT OF INDEBTEDNESS
The Company repaid certain other indebtedness with proceeds from the BCI Notes
in 1995. Unamortized debt issuance costs ($60,827) which had been capitalized
were written-off upon early extinguishment. Additionally, a settlement was
reached with a vendor for an outstanding capital lease obligation. The
settlement of the obligation was for less than the amount outstanding which
resulted in a gain on early extinguishment of debt of $80,951. Because the
Company is in a tax loss carryforward position, no tax benefit has been
recognized for the net extraordinary losses in 1996.
1996 BRIDGE LOANS
In November 1995, the Company executed a $600,000, 10% uncollateralized
promissory note with principal and interest due in May 1996. The note was paid
off with no gain or loss in September 1996 with proceeds from the $5,000,000
subordinated, convertible note payable executed in September 1996 as more fully
described in Note 6.
In December 1995, the Company executed a $500,000, 12% uncollateralized
promissory note to the Company's majority shareholder and CEO with principal
and interest due in September 1996. The note was paid off with no gain or loss
in September 1996 with proceeds from the $5,000,000 subordinated, convertible
note payable executed in September 1996 as more fully described in Note 6.
In March 1996, the Company executed a $500,000, 10% uncollateralized promissory
note to a director of the Company with principal and interest due in September
1996. The note was paid off with no gain or loss in September 1996 with
proceeds from the $5,000,000 subordinated, convertible note payable executed in
September 1996 as more fully described in Note 6.
Continued
F-21
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
11. Bridge Loans And Related Extraordinary Losses, Continued:
1996 BRIDGE LOANS, Continued
In March 1996, the Company executed a $750,000, 12% uncollateralized promissory
note to the Company's majority shareholder and CEO with principal and interest
due in September 1996. The note was paid off with no gain or loss in September
1996 with proceeds from the $5,000,000 subordinated, convertible note payable
executed in September 1996, as more fully described in Note 6.
12. Fair Value Of Financial Instruments:
The estimated fair value of the Company's financial instruments has been
determined by the Company using available market information and appropriate
valuation methodologies. The carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable, capital lease obligations and notes
payable approximate their respective fair values due to the short-term
maturities and approximate market interest rates of these instruments.
Management is unable to determine a fair value for the outstanding BCI Notes.
F-22
<PAGE>
==============================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY 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 HAVE
BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
______________
TABLE OF CONTENTS
Page
----
Additional Information.................................................. 2
Prospectus Summary...................................................... 3
Risk Factors............................................................ 5
Use of Proceeds......................................................... 9
Dividend Policy......................................................... 9
Price Range of Common Stock............................................. 10
Management's Discussion and Analysis or Plan of Operation............... 11
Business................................................................ 17
Regulation and Licensing................................................ 24
Management.............................................................. 29
Principal Stockholders.................................................. 35
Certain Transactions.................................................... 37
Description of Securities............................................... 40
Shares Eligible for Future Sale......................................... 46
Selling Security Holders................................................ 48
Plan of Distribution.................................................... 49
Legal Matters........................................................... 50
Experts................................................................. 50
Financial Statements.................................................... F-1
==============================================================================
==============================================================================
3,587,000 COMMON STOCK
PURCHASE WARRANTS
AND
3,587,000 SHARES OF COMMON STOCK
UPON EXERCISE OF THE WARRANTS
AND
254,000 SHARES OF COMMON STOCK
BOARDWALK
CASINO,
INC.
_____________
PROSPECTUS
______________
_______, 1997
==============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of the Nevada Revised Statutes and Article IV of the
Company's Restated Articles of Incorporation contain provisions for
indemnification of officers, directors, employees and agents of the Company.
The Restated Articles of Incorporation require the Company to indemnify such
persons to the full extent permitted by Nevada law. Each person will be
indemnified in any proceeding if he acted in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interest of the
Company. Indemnification would cover expenses, including attorney's fees,
judgments, fines and amounts paid in settlement.
The Company's Restated Articles of Incorporation also provide that the
Company's Board of Directors may cause the Company to purchase and maintain
insurance on behalf of any present or past director or officer insuring against
any liability asserted against such person incurred in the capacity of director
or officer or arising out of such status, whether or not the Company would have
the power to indemnify such person. The Company may seek to obtain directors'
and officers' liability insurance.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
*Printing Expenses............... $ 5,000
*Legal Fees and Expenses......... 20,000
*Accounting Fees and Expenses.... 10,000
*Miscellaneous Expenses.......... 5,000
-------
TOTAL....................... $40,000
-------------
*Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following information sets forth all shares of the $.001 par value
Common Stock of the Registrant sold by it within the past three years which were
not registered under the Securities Act of 1933, as amended. The Registrant was
incorporated as a Nevada corporation on July 27, 1993.
The total number of outstanding shares of Common Stock as of January 27,
1997 was 7,179,429.
Effective October 1, 1993, the small business issuer entered into a
subscription agreement (the "VC Subscription Agreement") with all of the
partners of VC, Ltd., Limited Partnership, an affiliated Nevada limited
partnership ("VC"). The sole general partner of VC was Holiday Gifts, Inc.,
a Nevada corporation ("HGI") whose sole shareholders at that time were
Norbert W. Jansen and Avis P. Jansen, founders, directors, executive officers
and the principal shareholders of the small business issuer. VC owned
certain real property upon which VC owned and operated the Boardwalk Hotel.
Pursuant and subject to the terms and conditions of the VC Subscription
Agreement, the small business issuer acquired all of the VC partners'
interests in and to VC, including the real property and the Boardwalk Hotel
(the
II-1
<PAGE>
"Hotel Assets"), by the issuance to the VC partners of an aggregate of
1,485,714 unregistered shares of Common Stock, as follows:
Holiday Gifts, Inc. (as General Partner) 757,714 Shares
Carl and Judith Arfa, Trustee 64,000 Shares
Kenneth and Mary Berry 32,000 Shares
Bonnie C. Cordova 16,000 Shares
David Cordova 64,000 Shares
Robert L. Faiman, Trustee 96,000 Shares
Charles and Phyllis Frias 160,000 Shares
Antoinette Harris, Trustee 32,000 Shares
Wendy Harris 16,000 Shares
Holiday Gifts, Inc. (as Limited Partner) 16,000 Shares
William C. and Inga H. Hudson 16,000 Shares
James D. Hunt 16,000 Shares
Avis P. Jansen 112,000 Shares
V.A. Ram, Trustee 24,000 Shares
Edward G. and Anna L. Sims 32,000 Shares
William and Ruth Veprin, Trustee 32,000 Shares
As a result of the foregoing transaction, the small business issuer
acquired all of the liabilities of VC, including the obligations of VC to
Bank of America Nevada f/k/a Valley Bank of Nevada pursuant to certain
promissory notes of VC dated April 25, 1985 in the original principal amount
of $4,000,000 and dated December 1, 1987 in the original principal amount of
$1,000,000 (collectively, the "Bank Loans").
Effective October 1, 1993, the small business issuer entered into a
purchase and sale agreement (the "Jansen Acquisition Agreement") with Norbert
W. Jansen ("Jansen"), the then president, principal shareholder and a
director of the small business issuer. Jansen owned certain real property
upon which HGI operated the Boardwalk Casino. Pursuant and subject to the
terms and conditions of the Jansen Acquisition Agreement, the small business
issuer acquired all of Jansen's interests in and to the real property and the
Boardwalk Casino (the "Casino Assets") by the issuance to Jansen of 1,605,250
unregistered shares of Common Stock. As a result of this transaction and as
part of the consideration paid by the small business issuer, the Casino
Assets continued to secure the obligations of VC to Bank of America Nevada
f/k/a Valley Bank of Nevada in connection with the Bank Loans.
Effective October 1, 1993, the small business issuer entered into a
purchase and sale agreement (the "HGI Acquisition Agreement") with HGI.
Pursuant to prior leases formerly with VC, Jansen and the small business
issuer, HGI operated, among other things, the casino and related facilities
at the Boardwalk Hotel & Casino and was the owner of certain gaming equipment
and related assets used in connection therewith. Pursuant and subject to the
terms and conditions of the HGI Acquisition Agreement, the small business
issuer acquired all of HGI's interests in and to the casino leases (but not
its gaming equipment and devices) (the "Gaming Assets") by the issuance to
HGI of 759,036 unregistered shares of Common Stock.
The foregoing 3,850,000 shares have been marked with restrictive legends
and are "restricted" shares as defined by Rule 144 promulgated under the
Securities Act of 1933, as amended. No underwriter was involved in the
distribution of these securities, and no commissions were paid in connection
therewith.
II-2
<PAGE>
Accordingly, the small business issuer believes that these transactions are
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933, as amended and Regulation D promulgated thereunder as private
transactions which did not involve a public offering of securities. The
purchasers are aware that the shares were not registered under the Securities
Act of 1933, as amended, and cannot be reoffered or sold until they have been
so registered or until the availability of the exemption therefrom has been
established to the satisfaction of the small business issuer.
On November 12, 1993 and December 10, 1993, the small business issuer
issued an aggregate of 225,000 shares of Common Stock, 450,000 Warrants to
purchase 450,000 shares of Common Stock and $750,000 principal amount of
promissory notes to 19 accredited investors in a bridge financing, as
follows:
Promissory Shares of Number of
Name Note Common Stock Warrants
---- ---------- ------------ ---------
United Growth Fund, Inc. $25,000 7,500 15,000
Europe American Capital Corp. $25,000 7,500 15,000
Vista Management Corp. $200,000 60,000 120,000
Irwin and Selma Roth $50,000 15,000 30,000
Edwin F. Wolfman $25,000 7,500 15,000
John J. Pasquale $50,000 15,000 30,000
Joseph Pennacchio $50,000 15,000 30,000
Michael F. Dawson $25,000 7,500 15,000
Joseph Lupo Profit Sharing Plan $25,000 7,500 15,000
Marcel Aronheim $35,000 10,500 21,000
Harvey Blitz $15,000 4,500 9,000
The Bridge Fund N.V. $40,000 12,000 24,000
Timothy F. Connolly $5,000 1,500 3,000
Herbert H. Feldman $25,000 7,500 15,000
Gregory Fischbach $25,000 7,500 15,000
Robert Holmes $25,000 7,500 15,000
James Scoroposki $50,000 15,000 30,000
Alvin Silver $25,000 7,500 15,000
Zeke Investment Partners $30,000 9,000 18,000
-------- ------- -------
Total $750,000 225,000 450,000
The issuance of the foregoing securities was made without registration
under the Securities Act in reliance upon the exemption provided by Section
4(2) of the Securities Act and in compliance with Rule 506 of Regulation D
under the Securities Act. Investors Associates, Inc. acted as the placement
agent in the bridge financing and received a cash selling commission equal to
10% of the purchase price of the securities sold ($75,000) and a
nonaccountable expense allowance of 3% of the purchase price of the
securities ($22,500).
During February and March 1995, the small business issuer issued an
aggregate of $1,000,000 in 12% promissory notes with maturity dates of six
(6) months to three persons. In connection therewith, the small business
issuer issued to the foregoing three persons an aggregate of 50,000 common
stock
II-3
<PAGE>
purchase warrants exercisable to purchase 50,000 shares of Common Stock at
$6.00 per share anytime on or before February 28, 2000, as follows:
Name Promissory Note Number of Warrants
---- --------------- ------------------
Robert Holmes $600,000 30,000
Michael Neider $100,000 5,000
James Scoroposki $300,000 15,000
On September 29, 1995, the small business issuer issued a $2,400,000
promissory note with a maturity date of three (3) months to Woodland
Partners, which was subsequently extended to January 10, 1996. In connection
therewith, the small business issuer issued to Woodland Partners an aggregate
of 150,000 common stock purchase warrants exercisable to purchase 150,000
shares of Common Stock at $5.625 per share from March 29, 1996 until
September 29, 2000.
The foregoing promissory notes and warrants have been marked with
restrictive legends and are "restricted" securities as defined by Rule 144
promulgated under the Securities Act. No underwriter was involved in the
distribution of these securities, and no commissions were paid in connection
therewith. Accordingly, the small business issuer believes that these
transactions are exempt from registration pursuant to Section 4(2) of the
Securities Act as private transactions which did not involve a public
offering of securities. The purchasers are aware that the securities were
not registered under the Securities Act of 1933, as amended, and cannot be
reoffered or sold until they have been so registered or until the
availability of the exemption therefrom has been established to the
satisfaction of the small business issuer.
On April 12, 1995, the small business issuer completed the private sale
of $40 Million 16.5% First Mortgage Notes Due 2005 (the "Notes"). The Notes
were issued to Franklin Custodian Funds, Inc. - Income Series under the
Indenture between Boardwalk Casino, Inc., Issuer and Shawmut Bank, N.A.,
Trustee for $40,000,000 16.5% First Mortgage Notes Due March 31, 2005, Dated
as of April 7, 1995. In connection therewith, the small business issuer
issued to Franklin Custodian Funds, Inc. - Income Series 1,281,869 common
stock purchase warrants exercisable to purchase 1,281,869 shares of Common
Stock at $6.00 per share anytime before April 11, 2005. The issuance of the
foregoing securities was made without registration under the Securities Act
in reliance upon the exemption provided by Section 4(2) of the Securities
Act. Brenner Securities Corporation acted as the placement agent and
financial advisor in this transaction and received a cash selling commission
equal to 3% of the purchase price of the securities sold ($1,200,000). In
addition, Brenner Securities Corporation (and its affiliates) were issued an
aggregate of 626,823 common stock purchase warrants exercisable to purchase
626,823 shares of Common Stock at $6.00 per share anytime before April 11,
2000.
In June 1996, the small business issuer completed a private offering of
15 Units, each Unit consisting of 10,000 shares of Common Stock valued at
$6.25 per share and 5,000 warrants valued at $0.25 per warrant, for total
gross proceeds of $956,250. Each warrant entitles the holder to purchase one
unregistered share of Common Stock at a price of $7.50 at any time until June
17, 2000. The issuance of the foregoing securities was made without
registration under the Securities Act in reliance upon the exemption provided
by Section 4(2) of the Securities Act and in compliance with Rule 506 of
Regulation D under the Securities Act. No underwriter was involved in the
distribution of these securities, and no commissions were paid in connection
therewith. The purchasers of the Units were Tina Hunt Coots (2 Units), James
D. Hunt, Jr. (2 Units), James D. Hunt (4 Units), Glenna K. Hunt (2 Units),
Carl Arfa and Judith Arfa (1 Unit) and Grove, Inc. (4 Units).
II-4
<PAGE>
On September 25, 1996, the small business issuer sold to Diversified
Opportunities Group Ltd. ("Diversified"), an Ohio limited liability company,
571,429 shares of Common Stock at a price of $7.00 per share for a total
purchase price of $4,000,000 and issued to Diversified a convertible
subordinated note in the principal amount of $5,000,000. Subject to
regulatory approvals, the note is convertible into a number of shares
determined by dividing the then unpaid principal balance of the note by
$7.50. The principal of the note is due and payable in September 1998. The
issuance of the foregoing securities was made without registration under the
Securities Act in reliance upon the exemption provided by Section 4(2) of the
Securities Act. No underwriter was involved in the distribution of these
securities, and no commissions were paid in connection therewith.
ITEM 27. EXHIBITS
1.1 Form of Underwriting Agreement, as amended.*
1.2 Form of Selected Dealers Agreement.*
1.3 Form of Agreement Among Underwriters.*
1.4 Form of Warrant Solicitation Fee Agreement.*
3.1 Restated Articles of Incorporation of the Registrant.*
3.2 Certificate of Amendment to Articles of Incorporation of the
Registrant.**
3.3 Bylaws of the Registrant.*
4.1 Form of Specimen Common Stock Certificate.*
4.2 Form of Specimen Warrant Certificate.*
4.3 Form of Representative's Option, as amended.*
4.4 Form of Warrant Agreement.*
4.5 Indenture between Boardwalk Casino, Inc., Issuer and Shawmut Bank, N.A.,
Trustee for $40,000,000 16.5% First Mortgage Notes Due March 31, 2005,
Dated as of April 7, 1995.*
5.1 Opinion of Andrew N. Bernstein, P.C., securities counsel for the
Registrant, as to the legality of the securities being registered.*
10.1 Subscription Agreement between the Registrant and the Partners of VC,
Ltd., Limited Partnership (the "VC Subscription Agreement").*
10.2 Acquisition Agreement between the Registrant and Norbert W. Jansen (the
"Jansen Acquisition Agreement").*
10.3 Acquisition Agreement between the Registrant and Holiday Gifts, Inc.
(the "HGI Acquisition Agreement").*
10.4 Holiday Inns Franchising, Inc. License Agreement with the Registrant.*
10.5 Form of Consulting Agreement with Horatio Management Corp.*
10.6 Form of Mergers and Acquisitions Agreement with Investors Associates,
Inc.*
10.7 Outside Directors Stock Option Plan of Boardwalk Casino, Inc.**
10.8 1994 Stock Compensation Plan of Boardwalk Casino, Inc.**
10.9 Employment Agreement between Boardwalk Casino, Inc. and Norbert W.
Jansen.**
10.10 Employment Agreement between Boardwalk Casino, Inc. and Louis J.
Sposato.**
10.11 Employment Agreement between Boardwalk Casino, Inc. and Forrest J.
Woodward, II.***
10.12 Purchase Agreement dated as of September 24, 1996, by and among
Diversified, Jansen and the Company.****
10.13 Convertible Subordinated Note dated September 24, 1996, executed by
the Company in favor of Diversified.****
10.14 Option and Proxy Agreement dated as of September 24, 1996, by and
among Diversified, Jansen and the Company.****
II-5
<PAGE>
10.15 Registration Agreement dated as of September 24, 1996, by and between
Diversified and the Company.****
10.16 Lease Agreement effective as of October 1, 1996, by and between Jansen
and the Company.****
23.1 Consent of Andrew N. Bernstein, P.C. (included in their opinion filed
as Exhibit 5.1).*
23.2 Consent of Coopers & Lybrand L.L.P.
23.7 Financial Data Schedule.
- ------------------
* - Previously filed
** - Incorporated by reference to the Report on Form 10-KSB for the fiscal
year ended September 30, 1994, file number 1-12780.
*** - Incorporated by reference to the Report on Form 10-KSB for the fiscal
year ended September 30, 1995, file number 1-12780.
****- Incorporated by reference to the Report on Form 10-KSB for the fiscal
year ended September 30, 1996, file number 1-12780.
ITEM 28. UNDERTAKINGS.
(a) RULE 415 OFFERINGS.
The undersigned small business issuer hereby undertakes that it
will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this Registration
Statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the Registration Statement; and
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act of 1933,
treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(b) REQUEST FOR ACCELERATION OF EFFECTIVE DATE.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or
II-6
<PAGE>
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer
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 and will be governed by the final
adjudication of such issue.
(c) RELIANCE UPON RULE 430A UNDER THE SECURITIES ACT.
The undersigned small business issuer hereby undertakes that it
will:
(1) For determining any liability under the Securities Act of
1933, as amended, treat 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 small business issuer under Rule 424(b)(1) or (4)
or 497(h) under the Securities Act as part of this registration
statement as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act of
1933, as amended, treat each post-effective amendment that
contains a form of prospectus as a new registration statement
for the securities offered in the registration statement, and
that offering of the securities at that time as the initial bona
fide offering of those securities.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Las Vegas, State of Nevada, on January 29, 1997.
BOARDWALK CASINO,INC.
Registrant
By: /s/ FORREST J. WOODWARD
------------------------------------
Forrest J. Woodward, President and
Chief Operating Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement was signed by the following persons in the
capacities and on the dates stated.
Name Title Date
---- ----- ----
/s/ AVIS P. JANSEN Chairman of the Board of Directors 1/29/97
- ------------------------- and Vice President
Avis P. Jansen
/s/ LOUIS J. SPOSATO Chief Financial Officer, 1/29/97
- ------------------------- Secretary, Treasurer and Director
Louis J. Sposato
/s/ JAMES SCIBELLI Director 1/29/97
- -------------------------
James Scibelli
/s/ KEVEN J. PICARDO Director 1/29/97
- -------------------------
Keven J. Picardo
/s/ JEFFREY P. JACOBS Director 1/29/97
- -------------------------
Jeffrey P. Jacobs
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NUMBER
23.2 Consent of Coopers & Lybrand L.L.P. . . . . . . . . . .
27.1 Financial Data Schedule . . . . . . . . . . . . . . . .
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 4 to the
registration statement on Form SB-2 (File No. 33-71816-LA) of our report dated
November 27, 1996, except for notes 6 and 7 as to which the date is January 6,
1997, on our audits of the financial statements of Boardwalk Casino, Inc. as of
and for the years ended September 30, 1996 and 1995. We also consent to the
reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
- --------------------------------
COOPERS & LYBRAND L.L.P.
Las Vegas, Nevada
January 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,772,549
<SECURITIES> 0
<RECEIVABLES> 456,962
<ALLOWANCES> 17,105
<INVENTORY> 73,719
<CURRENT-ASSETS> 5,860,089
<PP&E> 61,191,970
<DEPRECIATION> 5,705,685
<TOTAL-ASSETS> 63,170,949
<CURRENT-LIABILITIES> 7,116,077
<BONDS> 44,309,757
0
0
<COMMON> 7,179
<OTHER-SE> 11,737,936
<TOTAL-LIABILITY-AND-EQUITY> 63,170,949
<SALES> 4,031,279
<TOTAL-REVENUES> 28,991,024
<CGS> 2,268,404
<TOTAL-COSTS> 27,368,612
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,431,622<F1>
<INCOME-PRETAX> (4,413,794)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,413,794)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,413,794)
<EPS-PRIMARY> (.70)
<EPS-DILUTED> (.70)
<FN>
<F1>Note 1 on tag 32 Net of interest capitalized of $1,442,493
</FN>
</TABLE>
