SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
____________________
HEMMETER ENTERPRISES, INC. 84-1242693
BWBH, INC. 84-1242691
BWCC, INC. 84-1243506
MILLSITE 27, INC. 84-1242692
SILVER HAWK CASINO, INC. 84-1339843
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 Lincoln Avenue, 49th Floor 80203
Denver, Colorado (Zip Code)
(Address of principal executive offices of each Registrant)
Registrant's telephone number, including area code: (303) 863-2400
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
12% Senior Secured Pay-In-Kind Notes due 2003 of Hemmeter Enterprises, Inc.
Common Stock, par value $.01 per share of Hemmeter Enterprises, Inc.
Guarantee of 12% Senior Secured Pay In-Kind Notes due 2003
of Hemmeter Enterprises, Inc. by BWBH, Inc., BWCC, Inc., Millstone 27,
Inc. and Silver Hawk Casino, Inc.
(Title of Class)
TABLE OF CONTENTS
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . 1
Background of Bankruptcy; Plan of Reorganization . . . . 1
The Bullwhackers Casinos . . . . . . . . . . . . . . . . 3
Expansion Plans . . . . . . . . . . . . . . . . . . . . 4
Market for the Colorado Casinos . . . . . . . . . . . . 5
Employees . . . . . . . . . . . . . . . . . . . . . . . 9
Colorado Gaming Regulations . . . . . . . . . . . . . . 9
Non-Gaming Regulation . . . . . . . . . . . . . . . . . 11
ITEM 2. FINANCIAL INFORMATION . . . . . . . . . . . . . . . 12
Selected Financial Information . . . . . . . . . . . . . 12
Pro Forma Adjustments . . . . . . . . . . . . . . . . . 20
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 21
Overview . . . . . . . . . . . . . . . . . . . . . 21
Impact of the Plan of Reorganization on Results of
Operations . . . . . . . . . . . . . . . . . . 22
Results of Operations . . . . . . . . . . . . . . . 22
Liquidity and Capital Resources of the Company
Prior to the Effective Date . . . . . . . . . 26
Liquidity and Capital Resources of the Reorganized
Company . . . . . . . . . . . . . . . . . . . 27
ITEM 3. PROPERTIES . . . . . . . . . . . . . . . . . . . . . 28
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . 28
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS . . . . . . . . . . 30
ITEM 6. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . 31
Summary Compensation Table . . . . . . . . . . . . . . . 31
Compensation of Directors . . . . . . . . . . . . . . . 33
Employment and Consulting Agreements . . . . . . . . . . 33
Management Incentive and Non-Employee Director Stock
Plan . . . . . . . . . . . . . . . . . . . . . . . 33
Management Cash Bonus Plan . . . . . . . . . . . . . . . 34
Other Plans . . . . . . . . . . . . . . . . . . . . . . 34
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . 34
ITEM 8. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . 36
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS . . . . . . . . 37
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES . . . . . . 38
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE
REGISTERED . . . . . . . . . . . . . . . . . . . . . . . 38
Common Stock . . . . . . . . . . . . . . . . . . . . . . 38
Colorado Gaming Regulations . . . . . . . . . . . . . . 39
Certain Charter and Bylaw Provisions . . . . . . . . . . 39
12% Senior Secured Pay-In-Kind Notes Due 2003 . . . . . 40
General . . . . . . . . . . . . . . . . . . . . . . 40
Terms . . . . . . . . . . . . . . . . . . . . . . . 40
Redemption . . . . . . . . . . . . . . . . . . . . 41
Mandatory Offers to Purchase . . . . . . . . . . . 41
Guarantee of New Notes . . . . . . . . . . . . . . 42
Security . . . . . . . . . . . . . . . . . . . . . 42
Certain Covenants . . . . . . . . . . . . . . . . . 43
Events of Default and Remedies . . . . . . . . . . 46
Defeasance . . . . . . . . . . . . . . . . . . . . 48
Satisfaction and Discharge . . . . . . . . . . . . 49
Amendments and Waivers . . . . . . . . . . . . . . 49
Regarding the Trustee . . . . . . . . . . . . . . . 50
Guarantees of 12% Senior Secured Pay-In-Kind Notes due
2003 . . . . . . . . . . . . . . . . . . . . . . . 50
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS . . . . . 50
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . 51
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . 51
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS . . . . . . . . . 52
<PAGE>
ITEM 1. BUSINESS
General
Hemmeter Enterprises, Inc. (the "Company") develops, owns
and operates gaming and related entertainment facilities. On the
effective date of its Plan of Reorganization (see "- Background
of Bankruptcy; Plan of Reorganization"), the Company will own,
through subsidiaries, two of the largest casinos in terms of
number of slot machines in the historic mining towns of Black
Hawk and Central City, Colorado, which it operates under the name
of "Bullwhackers" (individually, "Bullwhackers Black Hawk" and
"Bullwhackers Central City," and collectively, the "Bullwhackers
Casinos") and has acquired through a new subsidiary Silver Hawk
Casino, Inc., a third facility located in Black Hawk, Colorado,
which it expects to open as a casino in July 1996 (the "Silver
Hawk," together with the Bullwhackers Casinos, the "Colorado
Casinos"). The Company has started construction of the first
phase of an approximately 500-space covered parking garage on
approximately 3.25 acres of land it currently operates as a 260-
space surface parking lot (the "Surface Parking Lot") located
directly between Bullwhackers Black Hawk and the Silver Hawk.
See "- Expansion Plans - The Parking Garage."
Background of Bankruptcy; Plan of Reorganization
The Company was incorporated in August 1993 for the purpose
of conducting the operations of HP Casino Management, L.P., BH
Management Company, LLC, Central City Management Company, LLC, HP
Black Hawk, LLC and HP Central City, LLC, which, along with
certain predecessor entities, constructed and were operating the
Bullwhackers Casinos.
In June 1994, through its wholly owned subsidiary, Grand
Palais Riverboat, Inc. ("GPRI"), the Company entered into a joint
venture with an unrelated entity to construct and operate a
riverboat gaming facility and related shore facilities in New
Orleans, Louisiana (the "Riverboat Project"). The Company's
share of development costs of the Riverboat Project was financed
in part through the private placement by the Company of
$140,000,000 of 11 1/2% Senior Secured Pay-In-Kind Notes due 2000
(the "Old Notes"). On June 15 and December 15, 1994, and June
15, 1995, the Company issued additional Old Notes in the
respective principal amounts of $8,117,000, $8,884,000 and
$9,420,000 in payment of the interest then due and payable on the
outstanding Old Notes.
The Riverboat Project incurred construction cost overruns
and had substantial operating losses as a result of the failure
of the New Orleans gaming market to develop as anticipated and
the resulting failure of the Riverboat Project to achieve
projected revenues. In June 1995, GPRI discontinued operation of
the Riverboat Project because it was unable to generate
sufficient revenues to cover operating expenses.
On July 26, 1995, an involuntary bankruptcy proceeding was
commenced against GPRI in the United States Bankruptcy Court for
the Eastern District of Louisiana. The involuntary bankruptcy
proceeding was converted into a voluntary Chapter 11 case on July
27, 1995 (the "GPRI Bankruptcy Case").
As a result of the financial difficulties of GPRI, the Old
Notes were declared to be in default in June 1995. During the
summer and early fall of 1995, the Company and investment
advisors to certain of the holders of the Old Notes negotiated a
debt restructuring which contemplated the commencement of Chapter
11 bankruptcy proceedings for the Company and three of its
subsidiaries, BWBH, Inc., BWCC, Inc. and Millsite 27, Inc. (the
"Colorado Subsidiaries") which were not then in bankruptcy. On
November 7, 1995, the Company and the Colorado Subsidiaries
commenced voluntary Chapter 11 cases in the United States
Bankruptcy Court for the District of Delaware (the "Hemmeter
Bankruptcy Cases"). On December 27, 1995, the venue of the
Hemmeter Bankruptcy Cases was transferred to the United States
Bankruptcy Court for the Eastern District of Louisiana.
The Company and the Colorado Subsidiaries have continued
their business operations as debtors-in-possession under the
supervision of the Bankruptcy Court since the commencement of the
Hemmeter Bankruptcy Cases. The Company received approval from
the Bankruptcy Court to pay or otherwise honor certain of its
pre-petition obligations related to the Bullwhackers Casinos,
including employee wages and benefits, utilities, and claims
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of certain trade vendors and such payments have been made. In
addition, the Bankruptcy Court approved a $7.9 million debtor-in-
possession financing facility for the Company and its Colorado
Subsidiaries (the "DIP Facility").
On March 29, 1996, a plan of reorganization (the "GPRI
Plan") was confirmed in the GPRI Bankruptcy Case. The GPRI Plan
was consummated on May 3, 1996. The GPRI Plan provided that all
outstanding shares of capital stock of GPRI (which were owned by
the Company) were cancelled and new stock issued to Casino
America, Inc., an unrelated party, or its assigns, which provided
consideration to GPRI's creditors valued at approximately
$55,000,000. Under the GPRI Plan, the Company received GPRI's
causes of action, if any, against GPRI's joint venture partner in
the Riverboat Project and received no other distribution in
respect of its stock ownership in GPRI or any claim that it may
have in the GPRI Bankruptcy Case.
On April 8, 1996, the First Amended Joint Plan of
Reorganization of the Company and its Colorado Subsidiaries (the
"Plan of Reorganization") was confirmed by order of the United
States Bankruptcy Court for the Eastern District of Louisiana.
The Plan of Reorganization will be consummated on the date
(the "Effective Date") on which certain conditions specified in
the Plan of Reorganization are satisfied or waived. The Company
expects that the Effective Date will occur prior to June 1, 1996.
The following events will occur at the Effective Date
pursuant to the Plan of Reorganization:
1. The Company and its Colorado Subsidiaries will be
discharged from any liability to GPRI or its creditors. The
Company will no longer have any interest in GPRI or the
Riverboat Project and its principal assets will consist of
the stock of its subsidiaries which own the Colorado Casinos
and the Surface Parking Lot.
2. The claims of entities which provided goods and services
to the Bullwhackers Casinos will be paid in full or will
otherwise be treated in such a manner so that they are not
impaired and all other unsecured creditors of the
Bullwhackers Casinos will receive notes in a principal
amount equal to the allowed amount of their claims which
provide for a single payment of principal and accrued
interest on the tenth anniversary of the issuance thereof.
All other unsecured creditors of the Company will receive no
distribution in respect of their claims against the Company.
3. The holders of the Old Notes<F1> and Resort Income
Investors, Inc., which holds a secured claim in the Hemmeter
Bankruptcy Case (the "RII Claim"; Resort Income Investors,
Inc. is sometimes referred to as "RII") will receive
$50,000,000 in principal amount of 12% Senior Secured Pay-
In-Kind Notes of the Company, due 2003 (the "New Notes"),
and one hundred percent (100%) of the issued and outstanding
capital stock of the reorganized Company, subject to being
diluted to 90% by certain stock grants to be provided to
senior management employees and non-employee directors. See
"Item 6, Executive Compensation." As a result, the holders
of the Old Notes and RII will be the principal creditors and
stockholders of the Company. The portion of the New Notes
paid to RII will be less than $1 million and a similar
portion of common stock will be issued to RII.
____________________
<F1> Because the Old Notes were primarily held in the names of
nominees, the Company is unable to determine the identity of
the Old Note holders directly. The individual holders of
approximately $152,775,000 of the outstanding principal
balance of the Old Notes filed proofs of claim in the
Chapter 11 bankruptcy proceedings of the Company described
below. The holders of five percent or more of the Old Notes
at the time of filing of those proofs of claim are described
below in Item 4, Security Ownership and Certain Beneficial
Owners and Management.
4. Pursuant to the settlement of certain lawsuits against
the Company and certain of its executive officers, the
Company will issue two promissory notes to Capital
Associates International, Inc. ("CAI"), an equipment lessor
which had leased equipment to the Company and GPRI, in the
respective principal amounts of $1,621,329.35 and $3,000,000
(the "CAI Notes"). The Company's obligation in respect of
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the CAI Notes will be reduced dollar for dollar by any
amounts received by CAI in respect of its claims filed in
the GPRI Bankruptcy Case. See "Item 8, Legal Proceedings."
5. Certain claims of the Company and the Colorado
Subsidiaries against third parties, including derivative
claims against the pre-Effective Date directors, officers,
and employees of the Company and its Colorado Subsidiaries,
will be transferred to a litigation trust (the "Litigation
Trust"). The trustees of the Litigation Trust will be the
post-Effective Date directors of the Company and will
determine whether or not to pursue any such claims. Any
amounts received in respect of any such claims will inure to
the benefit of the holders of the Old Notes and RII. See
"Item 8, Legal Proceedings."
6. Any amounts outstanding under the DIP Facility will be
paid in full and the DIP Facility will be terminated. The
Company anticipates replacing the DIP Facility with a new
$12.5 million credit facility on the Effective Date. See
"Item 2, Financial Information - Management's Discussion and
Analysis of Financial Condition and Results of Operation."
7. The Company will change its name to Colorado Gaming &
Entertainment Co.
The foregoing is only a summary of some of the principal
terms of the Plan of Reorganization, and is qualified in its
entirety by reference to the complete copy of the Plan of
Reorganization that has been filed as an Exhibit to this
Registration Statement.
The Bullwhackers Casinos
Colorado law currently permits limited stakes gaming (with a
maximum single bet of $5.00) in three historic mining towns:
Black Hawk and Central City, adjacent towns located approximately
35 miles from Denver, and Cripple Creek, located approximately 40
miles from Colorado Springs and 90 miles from Denver. The
Bullwhackers Casinos are located in Black Hawk and Central City.
Colorado law only permits casinos to offer slot machines and the
table games of blackjack and poker.
The following is a description of the Bullwhackers Casinos
and related facilities:
Bullwhackers Black Hawk. Bullwhackers Black Hawk opened on
July 17, 1992 and is currently one of the largest gaming
facilities, in terms of number of slot machines, in Black Hawk.
It is located on a prime site at the town's main intersection of
Colorado State Highway 119 (the primary access road to Interstate
70, which leads to Denver) and Gregory Street (which connects
Black Hawk to Central City). Bullwhackers Black Hawk is housed
in a 36,000 square foot facility which contains approximately
12,000 square feet of gaming space on four levels with the main
entry on the second level. The casino currently has 606 slot
machines, 8 black jack tables and 7 poker tables. The facility
has one bar on each level, a 176-seat full service restaurant and
office space. Bullwhackers Black Hawk utilizes a Victorian theme
in its interior design, featuring a winding grand staircase and a
glass-enclosed elevator connecting the various levels of the
facility.
The Company leases the land underlying Bullwhackers Black
Hawk pursuant to a 23-year ground lease expiring in 2014. The
terms of the ground lease require base minimum payments for the
calendar year 1996 of $150,000 per quarter. The base minimum
quarterly payments increase thereafter for each five-year period
for the balance of the lease term, up to a maximum of $195,000
per quarter. Additional rent in the amount of 1.9% of
Bullwhackers Black Hawk's adjusted gross revenue is payable
monthly in arrears throughout the term of the lease. The lease
contains a buy-out provision which allows the Company to buy the
land subject to the lease on or after November 1, 2001 at a price
equal to nine times the annual base minimum rent payments in
effect when the buy-out is exercised.
Surface Parking Lot. The Company believes that proximity
to parking is extremely important in Black Hawk. Onsite parking
is currently inadequate for most Black Hawk casinos. Although
the town has developed an approximately 3,000-space public
parking facility which serves all of the Black Hawk casinos by
shuttle service, the location of, and access to, the municipal
parking facility are generally considered to be inadequate by
most casino patrons. The Company believes that the few gaming
facilities that offer substantial parking at or close to
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the facility generate higher revenues per gaming device than gaming
facilities that do not offer adequate parking. To improve
parking for patrons of Bullwhackers Black Hawk, the Company
completed development of the Surface Parking Lot in 1994 as a
paved and lighted facility staffed for valet service, with a
capacity of approximately 260 cars. Under a current city
ordinance which imposes a fee on parking facilities which are not
"on-site" to a casino, the Company is required to pay the City of
Black Hawk $4 per day per space for each space in the Surface
Parking Lot, or approximately $380,000 per year.
Bullwhackers Central City. Bullwhackers Central City opened
on June 15, 1992 and is currently one of the largest gaming
facilities, in terms of number of slot machines, in Central City.
It is located on a prime site at one of the town's two main
intersections, and is adjacent to a public parking facility and
two of Central City's other large casinos. This 31,000 square
foot facility contains approximately 8,750 square feet of gaming
space on three levels with the main entry to the facility on the
second level. Bullwhackers Central City currently contains
approximately 400 slot machines and 4 black jack tables. The
facility has one bar on each level, a 126-seat full service
restaurant, a retail shop and office space. Bullwhackers Central
City also utilizes a Victorian theme in its interior design.
The Company believes that proximity to parking is also
extremely important to Central City casinos. However, except for
the largest casino in Central City, none of the casinos currently
operating in Central City offer onsite parking for more than 50
cars immediately adjacent to their facilities. There are several
public parking lots in Central City offering parking for a total
of approximately 550 cars, including a 200-space public lot
adjacent to Bullwhackers Central City. To alleviate the
difficulties associated with a lack of adequate parking, the
Company has recently implemented several busing programs in
conjunction with other Central City casino operators, which offer
cash giveaways and other incentives designed to enhance
incremental patron play, particularly during off-peak periods.
Expansion Plans
The Silver Hawk Casino. The Company purchased the Silver
Hawk casino facility on April 12, 1996. The purchase price for
the Silver Hawk land and building was $2.7 million, of which
$900,000 was paid in cash with the balance being financed by the
seller and payable pursuant to a promissory note secured by a
first deed of trust on the facility. The promissory note
provides for monthly payments based on a twenty-year amortization
with a balloon payment after seven years. The cash portion of
the purchase price was financed through borrowings under the DIP
Facility. The Silver Hawk is an approximately 12,000 square foot
four-story building constructed in 1993, and was operated as a
casino by an unaffiliated third party for less than 90 days
before it was closed. The Company intends to do minor interior
remodeling, install approximately 220 slot machines and 4 table
games and, upon obtaining a gaming and liquor license, open the
Silver Hawk as a casino. The Silver Hawk may not be operated
under the Bullwhackers name. The Company anticipates opening the
Silver Hawk concurrently with the opening of the first phase of
the Parking Garage (described below) in July 1996. There can be
no assurance, however, that the Company will be able to obtain
the licenses necessary to open Silver Hawk as a casino nor can
there be any assurances that the Company will be able to operate
and manage Silver Hawk on a profitable basis.
The Parking Garage. The Surface Parking Lot is located
directly between Bullwhackers Black Hawk and the Silver Hawk.
The Company intends to expand the parking available to
Bullwhackers Black Hawk and the Silver Hawk by constructing a
parking garage (the "Parking Garage") on the Surface Parking Lot
which, in addition to providing more parking spaces, will improve
traffic flow and customer access to Bullwhackers Black Hawk and
the Silver Hawk. The Parking Garage will be constructed in two
phases to minimize business disruption during the months when
revenues at Bullwhackers Black Hawk and the Silver Hawk are
highest. Phase I will consist of the construction of a 300-space
garage on approximately one-half of the Surface Parking Lot,
leaving between 150 and 200 surface parking spaces available for
use. It is anticipated that the construction of Phase I of the
Parking Garage will cost approximately $6 million and will be
completed in the second quarter of 1997. Following completion of
Phase I, the Company will re-evaluate the need for Phase II of
the Parking Garage, and if it proceeds with the construction of
Phase II, will expand the Parking Garage to cover the other half
of the Surface Parking Lot, resulting in a 500-space Parking
Garage. The estimated cost of environmental remediation which
the Company will be obligated to complete as part of the construction
of the Parking Garage is included in the estimated costs of
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constructing the Parking Garage. See "- Market for
Colorado Casinos, Environmental Issues." The Company has
obtained approval of its planned unit development for the Parking
Garage and has substantially completed the environmental
remediation and excavation work for the Parking Garage. The
Company anticipates delaying commencement of construction of the
Parking Garage until after the busy summer season. There can be
no assurance that either phase of the Parking Garage construction
project will be completed or, if completed, will be completed in
the anticipated time frame or within the expected budget.
Construction of the Parking Garage is also subject to the risks
inherent in any construction project, including shortages of
material and labor, unforeseen engineering problems, weather
interferences, work stoppages and unanticipated cost increases.
Upon completion, the Parking Garage will provide convenient
access to both Bullwhackers Black Hawk and the Silver Hawk. The
Company expects that the Parking Garage will be the largest
onsite parking facility in the town of Black Hawk.
Because the Parking Garage will be "onsite" to the Silver
Hawk, the Company will no longer have to pay the $4 per day per
parking space charge for the Parking Garage spaces that is
currently levied with respect to the Surface Parking Lot, thereby
saving the Company approximately $380,000 per year.
Slot Machine Enhancement. As discussed in more detail under
"- Market for the Colorado Casinos," the Company intends to
undertake a capital program to have substantially all of its slot
machines in the Bullwhackers Casinos equipped with bill
validators. This program is expected to cost $1 to $2 million
and is expected to be completed within two years.
Other. Although the Company intends to focus on its
existing operations, it will continue to evaluate new
opportunities to apply existing management expertise to
additional gaming operations, particularly in the Black Hawk
market. The Company's ability to acquire additional gaming
facilities in the State of Colorado without disposing of existing
facilities may be limited by the fact that no entity may hold
more than three Colorado gaming licenses. See "- Colorado
Gaming Regulations."
Market for the Colorado Casinos
General. Black Hawk and Central City are historic mining
towns made famous during the gold rush of 1869. Prior to the
advent of casino gaming in October 1991, Black Hawk, and to a
greater extent, Central City, were popular tourist towns,
especially in the summer months. The two towns offered mine
tours, antique and rock shops and live performances of opera in
the Central City Opera House. Casino gaming is currently the
main draw to the towns and gaming establishments have displaced
many of the former tourist-related businesses.
Customers for casinos in Black Hawk and Central City are
primarily "day trippers" from within a 100-mile radius of Black
Hawk and Central City, which includes the Denver metropolitan
area. Approximately 1.6 million people live in the Denver
metropolitan area, and approximately two million people live
within a 50 mile radius, and approximately 2.8 million people
live within a 100-mile radius, of Black Hawk and Central City.
Black Hawk and Central City are located approximately 35 miles
west of Denver and approximately ten miles from Interstate 70,
the main east-west artery connecting Denver with many of
Colorado's premier ski resorts.
Marketing Strategy. The Company seeks to attract customers
to the Bullwhackers Casinos by: (i) offering first class
facilities with comfortable and efficient layouts and the
availability of parking which is more convenient than that
provided by many of its competitors; (ii) promoting customer
awareness through marketing of the Bullwhackers name and theme;
(iii) providing excellent customer service with a motivated
staff; (iv) utilizing strategic busing programs; (v) using direct
mail; (vi) offering customer promotions; (vii) providing
desirable food products and refreshments, and (viii) providing
incentives to higher value repeat customers through membership in
the "Bullwhackers Slot Club."
The Company has used extensive marketing programs to build
customer awareness, including television, radio, print and direct
mail. The Company believes that Bullwhackers enjoys the highest
name recognition among all casinos located in Colorado, a fact
which the Company attributes in part to the success of its marketing
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campaigns. The Company has also developed promotional
offerings centered around the Bullwhackers theme of offering a
fun, exciting gaming atmosphere, including providing gift items
and a cash-back reward system based upon level of play. The
Company also has instituted a popular busing program known as the
"Bullride." The Bullride operates at least four times per day
from Golden, a western Denver suburb, to and from Black Hawk and
Central City, and between the two towns, and carries an average
of 2,500 patrons per week.
The Company intends to upgrade substantially all of its slot
machines at its Bullwhackers Casinos by equipping its slot
machines with bill validators, either by retrofitting existing
slot machines or purchasing new slot machines with bill
validators, at an estimated cost of $1 to 2 million (depending
upon whether the existing slot machines are retrofitted or new
slot machines are acquired) over the next two years. The Company
also intends to equip the Silver Hawk with slot machines with
bill validators. Bill validators allow patrons to use paper
currency rather than tokens or coins in slot machines. This
capital expenditure program is expected to increase the
competitiveness of the Colorado Casinos within their markets.
Competition. Bullwhackers Central City is located
approximately one and one-half miles from Bullwhackers Black Hawk
and, when opened, the Silver Hawk will be located adjacent to
Bullwhackers Black Hawk. Due to their proximity, the Colorado
Casinos compete for the same target market. However, the Company
believes that its primary competition for the Colorado Casinos
are other casinos operating in Black Hawk and Central City and,
secondarily, casinos operating in Cripple Creek. Colorado does
not limit the total number of gaming licenses available for
issuance in Colorado and there are no minimum facility size
requirements. As a result, there are few barriers to entry and
competition is intense.
According to the Colorado Division of Gaming, there were 56
gaming facilities operating in Colorado in December 1995, with a
total of 12,414 slot machines and 256 table games. Of these, 19
facilities, 4,877 slot machines and 113 table games were located
in Black Hawk; 13 facilities, 3,670 slot machines and 72 table
games were located in Central City, and 24 facilities, 3,867 slot
machines and 71 table games were located in Cripple Creek. In
December 1995, the average daily adjusted gross proceeds
(determined by deducting the amount paid out to patrons from
gross proceeds, and sometimes referred to as the casino's "win")
per slot machine was $102.60 in Black Hawk, $51.98 in Central
City and $85.40 in Cripple Creek. The cumulative win for slot
machines in Black Hawk as a market was $180 million in 1995,
compared with the cumulative win for slot machines in Central
City as a market of $86 million in 1995.
The Company believes that since October 1991, 12 casinos in
Black Hawk and 20 casinos in Central City have ceased operations.
In addition, several operators, including the Company, have
reduced staffing and others have closed temporarily or reduced
operations. The Company believes that the casinos that failed
did so for a variety of reasons, including inferior design, less
convenient parking, inadequate size, inexperienced management and
undercapitalization. Several facilities have also changed
ownership and more experienced, nationally recognized operators
from other areas of the country have entered the Colorado gaming
market, including Harrah's, Harvey's and Fitzgerald's. Plans
have been announced by several companies for the development and
operation of gaming facilities in Black Hawk and, to a lesser
extent, in Central City, which may be larger than those operated
by the Company. The announced Black Hawk prospects include a
proposed casino project by a joint venture between Caesars World,
Inc, a unit of ITT Corp., and Nevada Gold Casinos, a hotel/casino
project by a joint venture between Black Hawk Gaming and Jacobs
Entertainment and a major expansion by Colorado Central Station
across the street from their existing facility that would include
a hotel, parking garage, expanded gaming capacity and other
amenities. In Central City, Harvey's Wagon Wheel, currently the
largest casino in Central City, has announced plans to build a
new parking garage. In addition, certain of the Company's
competitors and potential competitors in Colorado have more
gaming industry experience and significantly greater financial
and other resources than the Company. If any of the gaming
projects in Black Hawk which have been announced are completed,
these projects could have a material adverse effect on the
Company's present and proposed operations in Colorado and the
Company's consolidated results of operations and financial
position.
While the Black Hawk market continues to grow and absorb new
capacity, growth in the Central City market has slowed recently.
Any future growth in Central City remains uncertain, due in large
part to the market's relative lack of convenient parking compared
to Black Hawk and the fact that the main thoroughfare to Central City
6
<PAGE>
passes directly through Black Hawk. As the gaming industry
in Black Hawk continues to expand, Central City will face
increased competitive pressure, potentially resulting in reduced
patronage, revenues and operating margins. The Company will from
time to time re-evaluate its position in Central City based on
current market conditions.
Several lobbying groups were able to place initiatives for
additional Colorado limited stakes gaming venues, including
Denver, on the November 1992 statewide ballot. Although each of
these initiatives was defeated by a wide margin, it is possible
that future initiatives could be introduced. No assurances can
be given that any such initiatives will be introduced or enacted,
or if enacted, what effect any such initiatives would have on the
Company's consolidated results of operations or financial
position.
In addition to the Colorado competitors described above, the
Company competes for both customers and potential future gaming
sites with gaming facilities nationwide, including casinos in
Nevada and Atlantic City. The Company also competes with other
forms of gaming on both a local and national level, including
state-sponsored lotteries, charitable gaming and pari-mutuel
wagering, among others, and competes for entertainment dollars
generally with other forms of entertainment. The recent and
continuing expansion of legalized casino gaming to new
jurisdictions throughout the United States may also affect
competitive conditions. Although the focus of the Company is the
Colorado gaming market, it will consider gaming ventures in other
locations if its resources allow it to do so.
Due to the rapid growth of the Colorado gaming market,
changes in the number of facilities operating and their
individual layouts, the seasonality of the business and the local
attributes of each Colorado gaming market, revenue results have
varied significantly between the various Colorado gaming markets
and between properties within those markets.
Reliance on Denver Market. The Company's gaming revenues
currently depend primarily upon visitor traffic at the
Bullwhackers Casinos from Denver metropolitan area residents. A
decline in the Denver economy or a decline in the Colorado gaming
market, including increased competition from other gaming
jurisdictions both inside and outside Colorado, could have a
material adverse effect on the Company's consolidated results of
operations and financial position.
Weather Related Risks. Because the Colorado Casinos are
located in the Rocky Mountains, they are subject to sudden and
severe winter storms. Access to Central City and Black Hawk,
which are both located ten miles from Interstate 70, is made via
a two-lane secondary road. In bad weather, and in the winter
months generally, this access road is difficult to traverse,
which reduces the number of patrons traveling to Black Hawk and
Central City, and negatively affects the Company's operating
results during these periods. In addition, bad weather can
result in a loss of services to the Colorado Casinos which also
negatively affects the Company's operating results. As a result,
the Colorado Casinos' business tends to be seasonal, with the
highest level of activity occurring during the summer months.
The site of Bullwhackers Black Hawk is located in a 100-year
flood plain. To date, the Company has not experienced any
flooding resulting in damage to the casino. The Company carries
$5 million in flood insurance on Bullwhackers Black Hawk, which
management currently believes is adequate. There can be no
assurance that Bullwhackers Black Hawk will not suffer flood
damage in the future or that any damage will be adequately
covered by insurance.
Environmental Issues. The Black Hawk and Central City
gaming districts, including the Colorado Casino sites, are
located generally within the Central City/Clear Creek Superfund
site (the "Site") as designated by the Environmental Protection
Agency (the "EPA"), pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended
("CERCLA"). The Site includes numerous specifically identified
areas of mine tailings and other waste piles from former gold
mine operations that are the subject of ongoing investigation and
clean-up by the EPA and the Colorado Department of Public Health
and Environment (the "CDPHE"). CERCLA requires remediation of
sites from which there has been a release or threatened release
of hazardous substances and authorizes the EPA to take any
necessary response actions at Superfund sites, including
authorizing potentially responsible parties ("PRPs") to clean up
or contribute to the clean-up of a Superfund site.
7
<PAGE>
PRPs are broadly defined under CERCLA, and include past and present
owners and operators of a site. CERCLA imposes strict liability on
PRPs, and courts have commonly held PRPs to be jointly and
severally liable for all response costs.
Although the Colorado Casinos are not within any of the
specific areas of the Site currently identified by the EPA for
investigation or remediation, the site on which the Surface
Parking Lot was constructed was identified as requiring
remediation in connection with the construction of the Surface
Parking Lot. That remediation was completed in June 1994.
Additional remediation will be required if the Company proceeds
with the construction of the Parking Garage on that site. The
Company has received the approval of the EPA and the CDPHE
concerning the scope of the additional remediation work and has
committed to complete such work as part of the construction of
the Parking Garage. The cost of the additional remediation has
been included in the estimated cost of construction of the
Parking Garage. See "- Expansion Plans; The Parking Garage."
The Company, through independent environmental consultants,
conducted both Phase I and Phase II environmental examinations of
the real property underlying the Bullwhackers Casinos and
obtained subsequent follow-up reports. Based on this
investigation, the Company is not aware of any environmental
problems affecting the Bullwhackers Casinos which are likely to
result in material costs to the Company. Although the Company
has not conducted environmental evaluations of the real property
underlying the Silver Hawk facility, it does not believe that
there are any environmental problems affecting the Silver Hawk
site which are likely to result in material costs to the Company.
No assurance can be given, however, that the Company will not
subsequently discover significant environmental problems at any
of its Colorado properties. Furthermore, the EPA or other
governmental authorities could broaden their investigations and
identify additional areas within the Site, including the Colorado
Casino sites, for remediation. If any of the Colorado Casinos
were included in additional areas of concern within the Site, the
Company could be identified as a PRP and any liability related
thereto could have a material adverse effect on the Company.
Furthermore, environmental conditions at any of the Company's
Colorado properties could have, or could in the future have, a
detrimental impact on adjacent or nearby properties or persons.
No assurance can be given that no such impact on a third party
will arise in the future, nor that such an impact, if it arises,
will not have a material adverse impact on the Company.
Limited Gaming Experience. The success of the Company will
depend, in large part, upon its success in hiring and retaining
qualified professionals or obtaining the services of third
parties in connection with the development, operation and
management of the Colorado Casinos. Certain of the Company's
current officers and directors, some of whom have been engaged by
the Company only recently, have limited experience in the
development or operation of casinos.
Availability and Retention of Key Management. The Company's
operations and development are dependent upon the services of its
executive officers. Although Stephen J. Szapor, Jr., President
and Chief Executive Officer of the Company ("Szapor"), Alan L.
Mayer, Senior Vice President, Chief Legal Officer and Secretary
of the Company ("Mayer") and Richard Rabin, Senior Vice President
of Operations of the Company ("Rabin"), will enter into
employment agreements with the Company on the Effective Date, the
loss of the services of these individuals could adversely affect
the Company. The Company's operations and development also are
dependent in part on its ability to attract and retain qualified
management personnel. Competition for qualified personnel in
Colorado is intense and there can be no assurance that in the
future the Company will be able to attract and retain the
personnel it needs for successful operations. See "Item 5,
Directors and Executive Officers."
Other Activities. In 1994, the Company entered into a
letter of intent to purchase a 25% interest in Promociones e
Inversiones de Guerrero S.A. de C.V. ("PRIGSA"), a Mexico City
based development and gaming company, which developed a jai alai
fronton and a race and sports betting operation in Acapulco,
Mexico. Pursuant to the letter of intent, the Company invested
approximately $6 million in PRIGSA with the right to acquire a
25% equity ownership following the receipt of certain
governmental approvals. To date, those approvals have not been
received nor do they appear likely to be received in the future.
The Company does not believe that the PRIGSA project is viable in
its current form and, accordingly, has recorded a 100% reserve
against its investment.
8
<PAGE>
Employees
The Company employs approximately 500 persons, including
cashiers, dealers, food and beverage service personnel, and
facilities maintenance, accounting, marketing and human resources
personnel. Several of the Company's employees hold key licenses
in Colorado. See "- Colorado Gaming Regulations." No labor
unions currently represent any employees of the Company. A
standard package of employee benefits is provided to full-time
employees. The Company believes that its employee relations are
satisfactory.
Colorado Gaming Regulations
The State of Colorado created the Colorado Division of
Gaming within the Department of Revenue to license, implement,
regulate and supervise the conduct of limited stakes gaming. The
Director of the Division, under the supervision of the five-
member Colorado Limited Gaming Control Commission (the
"Commission"), has been granted broad power to ensure compliance
with Colorado law and regulations adopted thereunder
(collectively, the "Colorado Regulations"). The Director of the
Division may inspect, without notice, premises where gaming is
being conducted; may seize, impound or remove any gaming device;
may examine and copy all of a licensee's records; may investigate
the background and conduct of licensees and their employees, and
may bring disciplinary actions against licensees and their
employees. He may also conduct detailed background checks of
persons who loan money to or invest money in a licensee.
It is illegal to operate a gaming facility without a license
issued by the Commission. The Commission closely regulates the
suitability of persons owning or seeking to renew an interest in
a gaming license or permit, and the suitability of a licensee or
permittee can be adversely affected by persons associated with
the licensee or permittee. Additionally, any person or entity
having any direct interest in the Company or any casino directly
or indirectly owned by the Company may be subject to
administrative action, including personal history and background
investigations. The actions of persons associated with the
Company and its management employees, over whom the Company may
have no control, could jeopardize any licenses held by the
Company in Colorado.
Bullwhackers Black Hawk and Bullwhackers Central City were
granted retailer/operator licenses concurrently with their
respective openings. These licenses are subject to continued
satisfaction of suitability requirements and must be renewed
periodically. The current licenses expire on June 2, 1996.
There can be no assurance that the Company will successfully
renew its licenses in a timely manner. Prior to opening the
Silver Hawk, the Company will be required to obtain a
retailer/operator license for that facility. There can be no
assurance that the Company will be able to obtain such a license
for the Silver Hawk.
Under the Colorado Regulations, no person can have an
ownership interest in more than three retailer/operator licenses.
The Company anticipates having three licenses, one each for
Bullwhackers Black Hawk, Bullwhackers Central City and the Silver
Hawk. Accordingly, any expansion opportunities that the Company
may have in Colorado may be limited absent the disposition of one
of the Colorado Casinos.
In addition, this limitation may affect the ability of
certain entities to own the Company's stock. Under the Colorado
Regulations, the definition of an "interest" in a licensee
excludes ownership of less than 5% of a publicly traded company.
Any owner of any interest in a Colorado licensee that is not
publicly traded or a 5% or more interest in a publicly traded
licensee may be precluded from owning more than 5% of the
Company's stock.
All persons employed by the Company who are involved,
directly or indirectly, in gaming operations in Colorado also are
required to obtain a license. Key licenses are issued to "key
employees", which include any executive, employee or agent of a
licensee having the power to exercise a significant influence
over decisions concerning any part of the operations of a
licensee. At least one key license holder must be on the
premises of each Colorado Casino at all times. Messrs. Szapor,
Mayer and Rabin, among others, hold key licenses for the Company.
All of the new directors of the Company who will be elected on
the Effective Date will be required to obtain key licenses.
There is no assurance that all of the new directors will meet
applicable licensing criteria or that the key licenses for the
new directors, other than Mr. Szapor, will be issued by the
Effective Date. Accordingly, it is possible that the Company
will operate with an interim board of directors consisting of
Messrs. Szapor, Mayer and
9
<PAGE>
Rabin until such time as the new directors are able to obtain
their key licenses. See "Item 5, Directors and Executive Officers."
Under the Colorado Regulations, any person or entity having
any direct or indirect interest in a gaming licensee or an
applicant for a gaming license, including but not limited to the
Company and stockholders of the Company, may be required to
supply the Commission with substantial information, including but
not limited to, personal background and financial information,
source of funding information, a sworn statement that such person
or entity is not holding his interest for any other party, and
fingerprints. Such information, investigation and licensing as
an "associated person" is automatically required of all persons
who directly or indirectly own 5% or more of a direct or indirect
legal, beneficial or voting interest in a privately owned gaming
licensee or 10% or more in a publicly traded licensee. Persons
directly or indirectly having an interest of between 5% and 9.99%
in a publicly held licensee must report their interest to the
Commission within ten days after acquiring their interest and may
be required to provide additional information and may be required
to be found suitable by the Commission. Persons directly or
indirectly having an interest in a publicly held licensee of 10%
or more must apply to the Commission for a finding of suitability
within 45 days after acquiring such interest. If certain kinds
of institutional investors provide specified information to the
Commission, such investors, at the Commission's discretion, may
be permitted to own up to 14.99% of a publicly traded licensee
before a finding of suitability will be required. The Commission
also has the right to request information from any person,
directly or indirectly interested in or employed by a licensee.
An application for licensure or a finding of suitability may be
denied for any reason deemed reasonable by the Commission or the
Director of the Division.
Pursuant to the Colorado Regulations, a licensee that elects
to register its common stock under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")
is considered to be publicly traded. The Company has elected to
so register its common stock effective on the Effective Date and,
accordingly, expects to be treated as a publicly traded company
within the meaning of the Colorado Regulations. By registering
its common stock, the Company will become subject to the
reporting requirements imposed by the Exchange Act.
If the Commission determines that a person or entity is not
suitable to own a direct or indirect voting interest in the
Company, the Company may be sanctioned unless the person or
entity disposes of its voting interest. Sanctions may include
the loss by any of the Colorado Casinos of their licenses. In
addition, the Colorado Regulations prohibit a licensee or any
affiliate of a licensee from paying dividends, interest or other
remuneration to any person found to be unsuitable, or recognizing
the exercise of any voting rights by any person found to be
unsuitable. The Colorado Regulations require an operating casino
licensee to include in its corporate charter which permit the
repurchase of the voting interests of any person found to be
unsuitable. The Company's Amended and Restated Certificate of
Incorporation includes the required provisions. See Item 11,
"Description of Registrant's Securities to be Registered - Common
Stock."
The Commission has the power to require the Company to
suspend or dismiss officers, directors and other key employees or
sever relationships with other persons who refuse to file
appropriate applications or who are found to be unsuitable to act
in such capacities, and may have such power with respect to any
entity which is required to be found suitable.
A person or entity may not sell, lease, purchase, convey,
acquire or pledge an interest in a licensee without the prior
approval of the Commission, except for a less than 5% interest in
a publicly traded corporation licensed to conduct limited stakes
gaming in Colorado.
The Colorado Casinos may operate only between 8:00 a.m. and
2:00 a.m., and may permit only individuals 21 years or older to
gamble in the casino. Slot machines, black jack and poker are
the only permitted games, with a maximum single bet of $5.00.
The Colorado Casinos may not provide credit to gaming patrons.
The Colorado Regulations restrict the percentage of space a
casino may use for gaming to 50% of any floor and 35% of the
overall square footage of the building in which the casino is
located. Effective October 1 of each year, Colorado establishes
the gross gaming revenue tax rate for the ensuing twelve months.
Under the Colorado Constitution, the rate can be increased to as
much as 40%. Colorado has both raised and lowered gaming tax
rates since they were initially set in 1991. Currently, the maximum
gaming tax rate is 18%. These regulations and taxes adversely affect
10
<PAGE>
the Colorado Casinos' ability to generate revenues and operating
profits. See "- Non-Gaming Regulation - Taxation."
The Company believes that it is presently in material
compliance with all applicable gaming rules and regulations.
The approval by the Commission of the changes in the stock
ownership of the Company pursuant to the Plan of Reorganization
is a condition precedent to the effectiveness of the Plan of
Reorganization.
Non-Gaming Regulation
Liquor Regulation. The sale of alcoholic beverages is
subject to licensing, control and regulation by certain Colorado
state and local agencies (the "Liquor Agencies"). Subject to
certain exceptions under applicable regulations, or the
application thereof, all persons who directly or indirectly own
5% or more of the Company must file applications with and are
subject to investigation by the Liquor Agencies. The Liquor
Agencies also may investigate persons who, directly or
indirectly, loan money to liquor licensees. All liquor licenses
are revocable and are not transferable. The Liquor Agencies have
broad powers to limit, condition, suspend or revoke any liquor
license and any such disciplinary action could (and revocation
would) have a material adverse effect upon the operations of the
Company and its Colorado Subsidiaries.
Under Colorado law, it is a criminal violation for any
person or entity to own a direct or indirect interest in more
than one type of alcoholic beverage license or more than three
gaming tavern liquor licenses. As a result, no stockholder of
the Company can legally own any direct or indirect legal,
equitable or voting interest in any other Colorado alcoholic
beverage licensee if such ownership will cause such stockholder
to own an interest in more than one type of alcoholic beverage
license or more than three gaming tavern liquor licenses.
Each Bullwhackers Casino has a gaming tavern liquor license
and it is expected that Silver Hawk will also obtain a gaming
tavern liquor license prior to its opening as a casino.
Consequently, no person with an interest in the Company can have
an interest in another liquor licensee which holds a liquor
license in Colorado other than a gaming tavern liquor license,
and, as a result, cannot have an interest in an entity which
holds a Colorado hotel and restaurant liquor license.
Additionally, to the extent that the Company holds three gaming
tavern liquor licenses in Colorado as expected, no person with an
interest in the Company can have an interest in another entity
with a Colorado gaming tavern liquor license. This limitation
may affect the ability of certain entities to own the Company's
stock.
The approval by the Liquor Agencies with jurisdiction over
the Colorado Casinos of the changes in the stock ownership of the
Company pursuant to the Plan of Reorganization is a condition
precedent to the effectiveness of the Plan of Reorganization.
Taxation. Gaming operators in Colorado are subject to state
and local taxes and fees in addition to ordinary federal and
state income taxes. Black Hawk and Central City have imposed
annual license fees currently totaling $750 and $1,265,
respectively, for each gaming device installed in a casino. The
State of Colorado has promulgated an annual gross gaming revenue
tax (gross gaming revenue being generally defined as the total
amount wagered less the total amount paid out in prizes) of 2% of
the gross gaming revenue up to and including $2 million, 8% of
the gross gaming revenue above $2 million up to and including $4
million, 15% of gross gaming revenue above $4 million up to and
including $5 million and 18% of gross gaming revenue in excess of
$5 million. Effective October 1 of each year, the Commission
establishes the gross gaming revenue tax rate for the ensuing 12
months. Under the Colorado Constitution, the Commission could
increase this rate to as much as 40%. Pursuant to a more recent
tax limitation amendment to the Colorado Constitution, however,
neither the state nor any local government may increase a tax
rate without an affirmative vote of the people; therefore, there
is some question as to whether the Commission could
constitutionally increase the state tax levied on gross gaming
revenues without such a vote. In addition, the State of Colorado
currently levies an annual $75 per device fee for each gaming
device installed in a casino. Any material increases in the
taxes or fees paid by the Company could have a material adverse
effect on the Company's consolidated results of operations and
financial position.
11
<PAGE>
ITEM 2. FINANCIAL INFORMATION
Selected Financial Information
The selected consolidated financial information presented
below for each of the years in the four-year period ended
December 31, 1995 and each of the three-month periods ended March
31, 1995 and March 31, 1996 is derived from the Company's
Consolidated Financial Statements and Notes thereto which include
BWBH, Inc., BWCC, Inc., Millsite 27, Inc. and Silver Hawk Casino,
Inc. Separate audited Financial Statements for BWBH, Inc., BWCC,
Inc., Millsite 27, Inc. and Silver Hawk Casino, Inc., as the
guarantors of the New Notes (the "Guarantors"), are not included
herein because the Guarantors are each jointly and severally
liable with respect to the full amount of New Notes and the
aggregate total assets, net earnings and net equity of the
Guarantors are substantially equivalent to the total assets, net
earnings and net equity of the Company and its subsidiaries on a
consolidated basis. This data should be read in conjunction with
the Consolidated Financial Statements of the Company and the
Combined Financial Statements of the predecessors of the Company
and the Notes thereto provided as Item 13 of this Registration
Statement and the Management's Discussion and Analysis of
Financial Condition and Results of Operations provided below.
The pro forma condensed consolidated statement of operations
data has been prepared assuming that the Effective Date occurred
on January 1, 1995 and January 1, 1996, respectively and the pro
forma condensed consolidated balance sheet data has been prepared
assuming that the Effective Date occurred on December 31, 1995,
and March 31, 1996, respectively and both are provided for
comparison purposes. For a more complete discussion of the pro
forma data, see "Hemmeter Enterprises, Inc. Unaudited Pro Forma
Condensed Consolidated Financial Information."
12
<PAGE>
Years Ended December 31,
_______________________________________________________
1995
(Pro
1992(a) 1993 1994(c) 1995(c) Forma)(d)
________ ________ ________ _________ _________
Statement of
Operations Data:
Net revenues . . . . $ 17,045 $ 38,468 $ 45,474 $ 47,428 $ 47,428
Operating Expenses:
Impairment of
assets and
predevelopment
expense . . . . . . . - - 10,804 11,347 11,347
Reorganization
items . . . . . . . . - - - 17,910 -
Other operating
expenses . . . . . . 25,349 35,310 47,631 44,807 46,120
Income (loss) from
operations . . . . . (8,304) 3,158 (12,961) (26,636) (10,039)
Interest expense . . 3,000 6,987 18,822 18,664 6,731
Equity in
unconsolidated
subsidiary (GPRI) - - 2,323 70,277 -
Net loss . . . . . . $(11,241) $ (3,829) $(32,131) $(115,216) $(16,720)
________ _______ _______ _________ ________
Net loss per common
share . . . . . . . . $ (1.09) $ (0.37) $ (3.22) $ (9.78) $ (3.25)
______ ______ ______ ______ ______
Weighted average
common shares (b) . 10,269,641 10,269,641 9,969,142 11,786,235 5,138,888
Three Months Ended March 31,
________________________________
1996
1995 1996 (Pro Forma)
____ ____ _________
Statement of
Operations Data:
Net revenues . . . . $ 11,817 $ 11,023 $ 11,023
Operating Expenses:
Impairment of
assets and
predevelopment
expense . . . . 1,465 - -
Reorganization
items . . . . . - 1,068 -
Other operating
expenses . . . . 12,129 9,648 9,958
Income (loss) from
operations . . . . (1,777) 424 1,065
Interest expense . . 4,459 120 1,632
Equity in
unconsolidated
subsidiary (GPRI) . 4,377 - -
Net loss . . . . . . $(10,400) $ 328 $ (543)
________ ___ ____
Net income (loss) per
common share . . . . $ (.88) $ .03 $ (.11)
_____ ___ _____
Weighted average
common shares (b) . 11,786,235 11,786,235 5,138,888
13
<PAGE>
Years Ended December 31,
_______________________________________________________
1995
(Pro
1992(a) 1993 1994(c) 1995(c) Forma)(d)
________ ________ ________ _________ _________
Balance Sheet Data:
Cash and cash
equivalents . . . . . $ 1,676 $ 12,944 $ 7,977 $ 3,623 $ 3,623
Total assets . . . . . 35,181 143,622 141,093 37,680 64,000
Long-term debt
(excluding current
portion) . . . . . . 35,064 139,595 155,675 - 54,348
Liabilities subject
to compromise . . . . - - - 186,460 -
Total stockholders'
equity (deficit) . . (10,002) (4,693) (36,824) (153,137) 4,343
As of March 31,
_________________________
1996
1996 (Pro Forma)
________ ___________
Balance Sheet Data:
Cash and cash
equivalents . . . . . $ 6,091 $ 6,091
Total assets . . . . 39,247 64,000
Long-term debt
(excluding current
portion) . . . . . . - 54,168
Liabilities subject
to compromise . . . . 186,460 -
Total stockholders'
equity (deficit) . . (152,809) 3,361
____________________
(a) Reflects operating results for the period from June 15, 1992
to December 31, 1992 for Bullwhackers Central City and the
period from July 17, 1992 to December 31, 1992 for
Bullwhackers Black Hawk.
(b) Warrants totaling 7,552,213 shares of common stock and
179,000 common stock, warrants and options issued under the
Company's pre-bankruptcy Restricted Share Plan and Non-
Employee Director Plan were not included in the calculation
of weighted average shares outstanding as their effect would
have been anti-dilutive.
(c) GPRI was consolidated with the Company and its other wholly
owned subsidiaries for the Company's fiscal year ended
December 31, 1994, but was not consolidated with the Company
and its other wholly owned subsidiaries for the Company's
fiscal year ended December 31, 1995 because the Company no
longer controlled GPRI following the commencement of the
GPRI Bankruptcy Case. See "Item 13, Financial Statements
and Supplementary Data."
(d) For information on specific pro forma adjustments resulting
from the reorganization, see "Unaudited Pro Forma Condensed
Consolidated Financial Information."
14
<PAGE>
Hemmeter Enterprises, Inc.
Unaudited Pro Forma Condensed Consolidated Financial Information
The following unaudited pro forma condensed consolidated
balance sheets for December 31, 1995 and March 31, 1996 and
statement of operations for the year ended December 31, 1995 and
the three months ended March 31, 1996 of the Company is based on
the consolidated financial statements of the Company included
elsewhere in this Registration Statement. The unaudited pro
forma condensed consolidated balance sheets of the Company has
been prepared assuming that the Effective Date of the Plan of
Reorganization had occurred on December 31, 1995 and March 31,
1995, respectively. The unaudited pro forma condensed
consolidated statements of operations of the Company has been
prepared assuming that the Effective Date of the Plan of
Reorganization had occurred on January 1, 1995 and January 1,
1996, respectively. Neither the unaudited pro forma condensed
consolidated balance sheets nor the unaudited pro forma condensed
consolidated statements of operations of the Company reflect the
acquisition of the Silver Hawk facility or the commencement of
construction of Phase I of the Parking Garage.
The unaudited pro forma condensed consolidated balance sheet
and statement of operations of the Company and accompanying notes
should be read in conjunction with the Company's consolidated
financial statements and notes thereto provided as Item 13 of
this Registration Statement. The unaudited pro forma condensed
consolidated financial information is being presented for
information purposes only and does not purport to represent what
the Company's consolidated financial position or results of
operations would actually have been if the Effective Date of the
Plan of Reorganization had occurred on December 31, 1995, March
31, 1996, January 1, 1995 or 1996, or to project the Company's
financial position or results of operations at any future date.
15
<PAGE>
Hemmeter Enterprises, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet Data
December 31, 1995
(In thousands)
December 31, Reorgan- December
1995 ization Fresh Start 31, 1995
(Historical) Adjustments Adjustmemts (Pro forma)
CURRENT ASSETS:
Cash and cash
equivalents . . . . . $ 3,623 $ 3,623
Accounts receivable . 226 226
Inventories . . . . . 85 85
Prepaid expenses . . 638 638
________ ________
Total current
assets . . . . . . . 4,572 4,572
PROPERTY, EQUIPMENT
AND LEASEHOLD
IMPROVEMENTS . . . . 32,127 32,127
INVESTMENT IN
UNCONSOLIDATED
SUBSIDIARIES . . . . -- --
EXCESS REORGANIZATION
VALUE . . . . . . . . -- 26,320 (4) 26,320
OTHER ASSETS . . . . 981 981
_________ _________
Total Assets . . . $ 37,680 $ 64,000
_________ _________
CURRENT LIABILITIES:
Accounts payable . .
$ 404 $ 404
Accrued expenses . . 3,953 3,953
Current portion of
credit facility. . -- 952 (1) 952
_________ _________
Total current
liabilities . . 4,357 5,309
_________ _________
NOTES PAYABLE:
Senior secured notes -- 50,000 (1) 50,000
Credit Facility . . -- 2,248 (1) 2,248
Other Notes . . . . -- 2,100 (1) 2,100
___________ ________
Total notes payable -- 54,348
___________ ________
LIABILITIES SUBJECT TO
COMPROMISE . . . . 186,460 (186,460) --
___________ _______
Total liabilities 190,817 59,657
___________ ________
STOCKHOLDERS EQUITY:
Common stock . . . . 118 (67) (2)(3) 51
Warrants . . . . . . 7,000 (7,000) (2) --
Additional paid-in
capital . . . . . . . 2,162 2,130 (5) 4,292
Retained earnings . (162,417) 138,227 24,190 (5) --
_________ _________
Total stockholders
equity . . . . . (153,137) 4,343
_________ _________
Total liabilities and
stockholders equity . $ 37,680 $ 64,000
_________ _________
16
<PAGE>
Hemmeter Enterprises, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 1995
(In thousands)
Year Year
Ended ended
December 31, Reorgan- December
1995 ization Fresh Start 31, 1995
(Historical) Adjustments Adjustmemts (Pro forma)
Revenues, net . . . . $ 47,428 $ 47,428
_________ ________
Operating Expenses:
Casino . . . . . . . 13,087 13,087
Gaming taxes . . . . 8,277 8,277
Food and beverage . 3,173 3,173
Casino general &
administrative . . 3,223 3,223
Corporate general &
administrative . . 6,470 6,470
Marketing. . . . . . 5,806 5,806
Depreciation and
amortization . . . . 4,771 1,313 (10) 6,084
Impairment assets and
predevelopment 11,347 11,347
expense . . . . . .
Reorganization items 17,910 (17,910) (6) --
_________ ________
Total operating
expenses . . . . 74,064 57,467
_________ ________
Operating loss . . . (26,636) (10,039)
Interest expense . . (18,664) 11,933) (7) (6,731)
Interest income . . . 361 (311) (8) 50
Equity in loss -
unconsolidated
subsidiary (GPRI). . (70,277) 70,277) (9) --
Loss before income
taxes . . . . . . . . (115,216) (16,720)
Provision for income
taxes . . . . . . . . -- --
_________ ________
Net loss . . . . . . $ (115,216) $ (16,720)
_________ ________
17
<PAGE>
Hemmeter Enterprises, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet Data
March 31, 1996
(In thousands)
March 31, Reorgan- March 31,
1996 ization Fresh Start 1996
(Historical) Adjustments Adjustmemts (Pro forma)
CURRENT ASSETS:
Cash and cash
equivalents . . . . . $ 6,091 $ 6,091
Accounts receivable . 237 237
Inventories . . . . . 73 73
Prepaid expenses . . 772 772
________ _________
Total current
assets . . . . . . 7,173 7,173
PROPERTY, EQUIPMENT
AND LEASEHOLD
IMPROVEMENTS . . . . 31,034 31,034
INVESTMENT IN
UNCONSOLIDATED
SUBSIDIARIES . . . . -- --
EXCESS REORGANIZATION
VALUE . . . . . . . . -- 24,754 (4) 24,754
OTHER ASSETS . . . .
1,040 1,040
________ _________
Total Assets . . . $ 39,247 $ 64,000
________ _________
CURRENT LIABILITIES:
Accounts payable . . $ 387 $ 387
Accrued expenses . . 5,209 5,209
Current portion of
credit facility . . . -- 875 (1) 875
________ _________
Total current
liabilities . . . . . 5,596 6,471
________ _________
NOTES PAYABLE:
Senior secured notes -- 50,000 (1) 50,000
Credit Facility . . -- 2,068 (1) 2,068
Other Notes . . . . -- 2,100 (1) 2,100
________ _________
Total notes
payable -- 54,168
________ _________
LIABILITIES SUBJECT TO
COMPROMISE . . . . . 186,460 (186,460) --
________ ________
Total liabilities 192,056 60,639
________ _________
STOCKHOLDERS EQUITY:
Common stock . . . . 118 (67) (2)(3) 51
Warrants . . . . . . 7,000 (7,000) (2) --
Additional paid-in
capital . . . . . . 2,162 1,148 (5) 3,310
Retained earnings . (162,089) 162,089 (5) --
________ _________
Total stockholders
equity . . . . . . (152,809) 3,361
________ _________
Total liabilities and
stockholders equity $ 39,247 $ 64,000
________ _________
18
<PAGE>
Hemmeter Enterprises, Inc.
Unaudited Pro Forma Condensed Consolidated
Statement of Operations
Three Months Ended March 31, 1996
(In thousands)
Three Months Three Months
Ended Ended
March 31, Reorgan- March 31,
1996 ization Fresh Start 1996
(Historical) Adjustments Adjustmemts (Pro forma)
Revenues, net . . . . $ 11,023 $ 11,023
_________ ________
Operating Expenses:
Casino . . . . . . . 3,168 3,168
Gaming taxes . . . . 2,002 2,002
Food and beverage . 735 735
Casino general &
administrative. . . 726 726
Corporate general &
administrative. . . 645 645
Marketing . . . . . 1,159 1,159
Depreciation and
amortization. . . . 1,095 309 (10) 1,404
Reorganization items 1,068 (1,068) (6) --
_________ ________
Total operating
expenses . . . . 10,598 9,839
_________ ________
Operating income . . 424 1,184
Interest expense . . (120) (1,512) (7) (1,632)
Interest income . . . 24 24
Income before taxes . 328 (543)
Provision for income
taxes . . . . . . . -- --
_________ ________
Net income (loss) . . $ 328 $ (543)
_________ ________
19
<PAGE>
Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements
The following notes set forth the explanations and
assumptions used and adjustments made in preparing the unaudited
pro forma condensed consolidated balance sheet as of December 31,
1995 and March 31, 1996, and the unaudited pro forma condensed
consolidated statements of operations for the year ended December
31, 1995 and three months ended March 31, 1996.
The unaudited pro forma condensed consolidated financial
statements reflect the adjustments described under "- Pro Forma
Adjustments" below, which are based on the assumptions and
preliminary estimates described therein, which are subject to
change. These statements do not purport to be indicative of the
financial position and results of operations of the Company as of
such dates or for such periods, nor are they indicative of future
results. Furthermore, these unaudited pro forma condensed
consolidated financial statements do not reflect anticipated
changes which may occur as the result of activities before and
after the Effective Date of the Plan of Reorganization and other
matters.
The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the financial
statements and the notes thereto provided as Item 13 of this
Registration Statement.
Pro Forma Adjustments
The unaudited pro forma condensed consolidated balance sheet
and unaudited pro forma condensed consolidated statements of
operations reflect the following pro forma adjustments based on
the assumptions described below:
The pro forma balance sheet adjustments:
1. Establishment of new secured and unsecured debt in accordance
with the Plan of Reorganization and classification between
current and long term as appropriate. This adjustment represents
the cancellation of existing Old Notes and certain other
indebtedness and the issuance of $50 million in New Notes, $3.6
million in equipment financing and $2.1 million in CAI Notes, out
of which $1 million of the $3.6 million equipment financing will
be paid within the first twelve months following the Effective
Date.
2. Elimination of preferred stock, common stock, and warrants
and the realization of debt forgiveness income as a credit to the
accumulated deficit.
3. Recording of new common stock at par (5,138,888 shares at
$.01=$51,389).
Fresh start adjustments (balance sheet)
4. Recording excess reorganization value to reflect the total
assets at estimated fair value based on appraisal data in
accordance with AICPA Statement of Position 90-7 ("SOP 90-7").
5. Recording retained earnings at zero and crediting the
difference between the reorganized assets and liabilities as a
credit to paid in capital in accordance with SOP 90-7.
The pro forma statement of operation adjustments:
6. Elimination of one time non-recurring reorganization items.
7. Adjustment to interest expense to reflect the reorganized
debt structure of the Company.
8. This adjustment reflects the reduction of interest income
recorded on affiliate loans in the 1995 period.
9. Elimination of any charges from the disposed subsidiary
(GPRI).
20
<PAGE>
Fresh Start Adjustments (statement of operations):
10. Recording of additional amortization charges on excess
reorganization value, based on a 20 year amortization period.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Prior to the Effective Date, the Company, through its
Colorado Subsidiaries, owned and operated the Bullwhackers
Casinos and the Surface Parking Lot in Colorado, and, through
GPRI, operated a riverboat gaming facility on the Mississippi
River adjacent to downtown New Orleans and owned a 50% interest
in River City Joint Venture ("RCJV") which owned and leased
certain shore facilities in New Orleans, including approximately
53 acres of land. Additionally, RCJV provided administrative
services on behalf of its joint venture partners to support their
riverboat gaming operations. Both the Company's and its joint
venture partner's riverboat gaming facilities were operated under
the name `River City'. The Company's riverboat gaming facility
commenced operations on March 29, 1995, and due to substantial
operating losses, stopped operations on June 6, 1995. The
Company's joint venture partner stopped riverboat gaming
operations on June 9, 1995.
Prior to the closure of its riverboat gaming operations,
GPRI had incurred substantial obligations, including construction
costs, equipment purchases, and trade payables, for which it had
no funds available or financial ability to pay. On July 26,
1995, three creditors of GPRI filed a Chapter 7 involuntary
bankruptcy petition against GPRI in the United States Bankruptcy
Court for the Eastern District of Louisiana. On July 27, 1995,
GPRI's involuntary bankruptcy case was converted into the GPRI
Bankruptcy Case. The GPRI Plan was confirmed on March 29 1996.
The GPRI Plan provides that the Company will receive any causes
of action that GPRI may have against its joint venture partner in
the River City Project, but will not otherwise receive any
distribution from GPRI in respect of its stock ownership of GPRI
or any claim that it may have in the GPRI Bankruptcy Case. Any
payments received by CAI in respect of its claims in the GPRI
Bankruptcy Case will, however, reduce the Company's obligations
on the CAI Notes.
As a result of GPRI's financial difficulties and subsequent
bankruptcy filing, the Old Notes were declared in default in June
1995. After reaching agreement on a debt restructuring with the
holders of the Old Notes, the Company and its Colorado
Subsidiaries filed the Hemmeter Bankruptcy Cases in the United
States Bankruptcy Court for the District of Delaware on November
6, 1995. The venue of the Hemmeter Bankruptcy Cases was changed
to the United States Bankruptcy Court for the Eastern District of
Louisiana on December 27, 1995. The Plan of Reorganization of
the Company and its Colorado Subsidiaries was confirmed on April
8, 1996 and is expected to become effective on or about May 18,
1996. The Company and the Colorado Subsidiaries have continued
their business operations as debtors-in-possession under the
supervision of the Bankruptcy Court since the date their
bankruptcy petitions were filed.
On the Effective Date of its Plan of Reorganization, the
Company will adopt fresh start reporting in accordance with SOP
90-7, resulting in adjustment of the Company's common
stockholders' equity and the carrying values of assets and
liabilities. Accordingly, the Company's post-reorganization
consolidated balance sheet and statement of operations will not
be prepared on a consistent basis of accounting with its pre-
reorganization balance sheets and statements of operations. In
connection with its reorganization, a substantial amount of pre-
bankruptcy liabilities of the Company will be converted to equity
or otherwise discharged and significant adjustments will be made
to reflect the resolution of, or provision for, certain
contingent liabilities.
Because of the Hemmeter Bankruptcy Cases and the elimination
of GPRI's operations, no measure of comparability can be drawn
from past results in order to measure those that may occur in the
future. Among the uncertainties which have effected the
Company's operations in the past and might adversely impact the
Company's future operations are (i) general economic conditions,
especially in the Denver, Colorado, metropolitan area, (ii) the
intensely competitive nature of the Colorado gaming industry,
(iii) the entry into the Black Hawk and Central City gaming
markets of licensees with substantially greater economic
resources and gaming experience than the
21
<PAGE>
Company, (iv) changes in the laws governing gaming operations,
and (v) the possibility of increased taxes and other regulatory
burdens on the Company's operations.
Impact of the Plan of Reorganization on Results of Operations
Upon the Company's emergence from bankruptcy on the
Effective Date, the Company's aggregate outstanding debt balance
will be reduced from $185.2 million to approximately $55.7
million. The reduction in debt is expected to result in a
reduction in annual interest expense of approximately $12 million
based on the Company's weighted average interest rate on
outstanding debt in 1995. The Company expects to obtain a credit
facility with an unaffiliated lender to provide working capital
financing and financing for its expansion plans. See "-
Liquidity and Capital Resources." Interest on this facility, the
amount of which will depend on the amount borrowed by the
Company, will increase the Company's post-Effective Date interest
expense. The Company also incurred reorganization charges
totaling $17.9 million in 1995 which are non-recurring in nature.
The Company's corporate general and administrative expense in
1995 was $6.5 million. In early 1995, the Company employed 27
corporate management employees who provided operations, finance,
design, development, legal and aviation services to the Company.
As part of the downsizing of the Company, the Company will only
employ five corporate management employees on the Effective Date.
The Company has also terminated its arrangement with an affiliate
for use of a corporate aircraft and has renegotiated its office
lease to provide for more favorable terms. The reductions
resulting from these measures is expected to allow the Company to
reduce its corporate general and administrative expense by
approximately $3.7 million per year. Because of the divestiture
of GPRI through the GPRI Bankruptcy Case, the Company's
operations will no longer be burdened with the loss on GPRI's New
Orleans operations, which totaled $71.7 million in 1995.
The adoption of fresh start accounting will result in
increased amortization charges of approximately $1.3 million
annually as a result of recording $26.3 million of excess
reorganization value.
Since its inception, the Company has generated significant
net operating loss carryforwards for tax purposes, which, in the
absence of the Company's bankruptcy, would have been available to
offset any taxable income earned in the future. As a result of
the consummation of the Plan of Reorganization, the Company may
undergo a substantial change in ownership and incur significant
forgiveness of indebtedness income. For tax purposes, the
forgiveness of indebtedness income and the ownership change will
significantly limit or eliminate the Company's net operating loss
carryforwards and other tax benefits. Additionally, while fresh
start accounting requires the Company to significantly increase
the book basis of its assets, the tax bases of those assets
generally remain at their historical bases. Therefore, given the
potential limitation or elimination of the Company's net
operating loss carryforwards and the increased book depreciation
and amortization charges, the Company may have taxable income in
the future, and, therefore, may be required to pay income taxes,
even though it may record a loss for financial reporting
purposes.
Results of Operations
For the Year Three Months Ended March 31, 1996 as Compared
to the Three Months Ended March 31, 1995.
The Company's net revenue decreased to $11.0 million for the
first quarter of 1996, as compared to $11.8 million for the first
quarter of 1995, representing a 7% decrease in net revenues. The
decrease is primarily attributable to a $1.0 million, or 27%,
decrease in Bullwhackers Central City's net revenue due to
increased competition and slower growth in the Central City
market in general. The results in the first quarter at both
Bullwhackers Black Hawk and Bullwhackers Central City were also
significantly affected by abnormally severe winter weather in the
central mountains of Colorado.
Expenses directly related to casino operations, including casino
expense, gaming taxes, and food and beverage expense decreased 6%
to $5.9 million for the first quarter of 1996 as compared to $6.3
million for the first quarter of 1995 due to a decline in revenue
and implementation of certain cost efficiencies. Casino expense
22
<PAGE>
was 53% of net revenue for the first quarter of 1996, as compared
to 56% of net revenue for the first quarter of 1995.
General and administrative expense decreased to $1.4 million
for the first quarter of 1996, as compared to $3.4 million for
the first quarter of 1995. The decrease is primarily due to
expense reductions made at the corporate level. During the
second quarter of 1995, the Company began to implement
significant cost reductions at the corporate level as part of the
Company's restructuring. Most corporate positions were
eliminated, administrative offices were combined with the
Colorado Casinos, and the use and subsidy of a corporate airplane
was terminated.
Marketing expense decreased to $1.2 million for the first
quarter of 1996 as compared to $1.3 million for the first quarter
of 1995. The decrease is attributable the Company implementing
more cost effective marketing programs.
Depreciation expense remained constant at $1.1 million for
the first quarter of 1996 and 1995.
There was no predevelopment expense for the first quarter of
1996 and compared to $305,000 for the first quarter of 1995.
Predevelopment expense consists of costs incurred during the
investigation of potential new gaming venues throughout North
America, including legal, consulting and design costs, political
contributions and travel expenses. The Company substantially
reduced its predevelopment activity in early 1995 due to the
Company's lack of financial resources. The Company is not
currently engaged in any predevelopment activities and has
focused its expansion efforts on the Black Hawk market in the
immediate future.
There were no impairment of assets charges in the first
quarter of 1996 as compared to $1.2 million for the first quarter
of 1995. The impairment charges in 1995 primarily relate to $1
million reserve recorded for affiliate company receivables
determined not to be collectable.
Reorganization expense totaled $1.1 million for the first
quarter of 1996 as compared to none in the first quarter of 1995.
Reorganization costs are costs directly related to the Company's
Chapter 11 reorganization and primarily consists of legal fees.
Operating Income. Income from operations increase to
$424,000 for the first quarter of 1996 as compared to a loss from
operations totaling $1.7 million for the first quarter of 1995.
The primary reason for the increase in operating income is the
reduction in corporate general and administrative expense
discussed above. The Colorado Casinos' operating income, absent
corporate overhead and restructuring charges, decreased to $2.2
million for the first quarter of 1996 as compared to $2.4 million
for the first quarter of 1995, attributable to the decline in the
Central City market and the severe weather in January.
Interest expense total $120,000 for the first quarter of
1996 as compared to $4.5 million for the first quarter of 1995.
The Company is not recording any interest on its debt obligations
in the 1996 period because all such debt obligations are
undersecured and accordingly will not be entitled to interest
pursuant to the Plan of reorganization. In the 1995 period, $4.3
million of interest was expensed related to the Company's $157
million of senior secured pay in kind notes outstanding.
For the Year Ended December 31, 1995 as Compared to the Year
Ended December 31, 1994.
Although GPRI's results of operations were consolidated with
the results of operations of the Company and its other wholly
owned subsidiaries for the Company's fiscal year ended December
31, 1994 and were not consolidated for the Company's fiscal year
ended December 31, 1995, GPRI's only operating item in 1994 was
the preopening expense of $2.6 million discussed below.
Therefore, with the exception of this item, the Company's 1995
results of operations which do not include GPRI are comparable to
the Company's 1994 results of operations which do include GPRI.
23
<PAGE>
The Company's net revenue increased to $47.4 million in 1995
as compared with $45.5 million in 1994, representing a 4%
increase in net revenues. The growth is primarily attributable
to increased revenues at Bullwhackers Black Hawk resulting from
the fact that Bullwhackers Black Hawk had the benefit of the
Surface Parking Lot, which opened in April 1994, for all of 1995,
as opposed to eight months during 1994, and the fact of the
overall market growth in Black Hawk of 14% in 1995. The revenue
growth at Bullwhackers Black Hawk was offset by a slight decrease
in Bullwhackers Central City gross revenues.
Expenses directly related to the casinos, including casino
expense, gaming taxes and food and beverage expense decreased by
3% to an aggregate of $24.5 million for 1995 as compared to an
aggregate $25.3 million for 1994. Casino expense was 52% of net
revenue at the Bullwhackers Casinos for 1995 as compared 56% of
net revenue at the Bullwhackers Casinos for 1994. Casino expense
consists of all direct costs of casino operations, and includes
salaries, wages and benefits expense.
General and administrative expense decreased to $9.7 million
for 1995 as compared to $11.4 million for 1994, representing a
15% decrease. The decrease is due to the Company's reduced
corporate group during the second half of 1995. During the
second quarter of 1995, the Company began to implement
significant cost reductions at the corporate level as part of the
Company's reorganization. Most corporate positions were
eliminated, administrative offices were combined with the
Colorado Casinos, and the use and subsidy of a corporate airplane
was terminated. As a result of these and other reorganization
efforts, general and administrative expense should be
substantially lower in 1996.
Marketing expense increased to $5.8 million for 1995 as
compared to $3.8 million for 1994. The increase primarily
relates to the increased promotional costs due to increased
business volume and the competitive nature of the market.
Depreciation and amortization expense increased to $4.7
million for 1995 as compared to $4.3 million for 1994,
representing a 9% increase. The increase primarily reflects a
full year of depreciation on the improvements at the Surface
Parking Lot in 1995.
There were no pre-opening costs for 1995 as compared to $2.6
million in pre-opening costs for 1994. Pre-opening costs in 1994
consisted of expenditures incurred to prepare the New Orleans
riverboat gaming facility for opening.
Predevelopment expense decreased to $402,000 in 1995, as
compared to $3.9 million in 1994. Predevelopment expense
consists of costs incurred during the investigation of potential
new gaming venues throughout North America, including legal
($127,000 in 1995 and $641,000 in 1994), consulting and design
costs ($109,000 in 1995 and $2.4 million in 1994), political
contributions ($52,000 in 1995 and $206,000 in 1994) and travel
expenses ($115,000 in 1995 and $682,000 in 1994). The Company
substantially reduced its predevelopment activity in early 1995
due to the Company's lack of financial resources. The Company is
not currently engaged in any predevelopment activities and has
focused its expansion efforts on the Black Hawk market in the
immediate future.
Impairment of asset charges were $10.9 million for 1995 as
compared to $6.9 million for 1994. In 1995, the impairment
charges resulted primarily from approximately $6.4 million of
affiliate company receivables determined to be uncollectible,
$2.7 million of capitalized interest related to construction of
the Riverboat Project and $1.5 million of capitalized offering
costs which were written-off once certain initial public offering
and debt registration efforts were abandoned.
Reorganization expense in 1995 totaled approximately $17.9
million as compared to none in 1994. Reorganization expenses are
costs directly related to the Company's Chapter 11 reorganization
and consist primarily of professional fees and the write-off of
unamortized debt placement costs and debt discount.
Operating Income. The loss from operations increased to
$26.6 million for 1995 as compared to $13.0 million for 1994.
The New Orleans operations accounted for none and $2.6 million
of this loss in 1995 and 1994,
24
<PAGE>
respectively. In 1995, reorganization, impairment and other
necessary charges totaled approximately $29.3 million. The
Bullwhackers Casinos had operating income of $9.7 million
for 1995 as compared to $8.3 million for 1994. This increase
primarily reflects the growth in the Colorado market and the
impact of the Surface Parking Lot on the Bullwhackers Black
Hawk operations.
Interest expense totaled $18.7 million for 1995 as compared
to $18.8 million for 1994. The Company ceased accruing interest
on the Old Notes and on certain of its Bullwhackers Casino
equipment financings as of November 7, 1995 because of the
Company's bankruptcy filing. As a result of the decrease in the
Company's debt following the Effective Date, the Company
anticipates that its interest expense will be substantially
reduced in the future.
The Company has made no provision for income taxes in 1995
or since its inception because the Company never generated
taxable income. The Company has reserved the full amount of its
net deferred tax asset (primarily net operating loss carry
forwards) because future taxable income, if any, is uncertain.
The reorganization of the Company on the Effective Date may have
substantial tax consequences to the Company. See "- The Impact
of the Reorganization on Results of Operations."
For the Year Ended December 31, 1994 as Compared to the Year
Ended December 31, 1993.
Net revenues for 1994 were $45.5 million, an increase of 18%
over the $38.5 million of net revenues for 1993. The increase in
revenue is due primarily to the completion of the Surface Parking
Lot in the spring of 1994 and an expanded gaming market in Black
Hawk.
Expenses directly related to the casinos, including casino
expense, gaming taxes and food and beverage expense increased to
an aggregate of $25.3 million for 1994 as compared to $19.7
million for 1993. The increase in casino expenses is due
primarily to increased staffing as a result of greater activity
at Bullwhackers Black Hawk.
General and administrative expense increased to $11.4
million for 1994 as compared to $7.7 million for 1993. These
expenses include the cost of support services such as finance,
marketing, and administrative staff. The increased expense for
1994 is due to costs totaling $8.1 million incurred in 1994
associated with the creation of a corporate group and related
staff, which were added beginning in January 1994. The corporate
group was involved with strategic planning and administration,
the development of the Company's Louisiana operations and the
pursuit and development of gaming in other venues. The corporate
group put in place in 1994 was designed to manage several
operating companies in addition to the Colorado Subsidiaries and
to pursue and develop opportunities in new venues.
Marketing expense decreased to $3.8 million for 1994 as
compared to $4.0 million for 1993.
Depreciation and amortization increased to $4.3 million for
1994 as compared to $3.9 million for 1993. The increase is
related to depreciation of the improvements at the Surface
Parking Lot which was completed in April 1994.
Pre-opening expense totaled $2.6 million for 1994 as
compared to none in 1993. Pre-opening costs consist of
expenditures incurred to prepare for the opening of the casinos
and include labor costs, certain consulting, marketing and other
direct costs. The pre-opening expense incurred in 1994 relates
to costs associated with the Company's New Orleans riverboat
gaming facility.
In 1994, the Company recorded predevelopment expense of $3.9
million as compared to none in 1993. This amount related to
costs incurred during investigation of potential new gaming
venues which was initially capitalized as investment in
development projects. These costs are expensed when a project is
no longer deemed viable. As a result of various gaming
initiatives which were not adopted by voters in potential new
gaming venues, unsuccessful gaming legislation proposed in
potential new venues and municipalities which selected gaming
operators other than the Company, all such costs were expensed in
1994. Beginning in 1995, costs related to the investigation
25
<PAGE>
of new venue development projects were expensed as incurred.
Once management has determined a new venue project has a high
probability of success, commercial development costs incurred
will be capitalized.
In September 1994, the Company entered into an agreement to
acquire a 25% equity interest in PRIGSA. The Company contributed
$5.9 million to PRIGSA during 1994. The contributions were made
in the form of loans and, upon approval by the Mexican
government, were convertible into common stock. The results of
PRIGSA's operations upon opening in the fall of 1994 were
substantially below expectations, and, as a result, PRIGSA
suffered significant operating losses and has significant
liabilities which are senior to the Company's loans to PRIGSA.
As of December 31, 1994, the Company wrote-off its investment in
PRIGSA for a total charge to earnings of $5.9 million.
In 1994, the Company established a reserve of $1 million for
certain affiliate receivables that management believed might not
be collectable. The loss is included in impairment of
investments as of December 31, 1994 in the accompanying
consolidated financial statements of the Company for 1994
(provided as Item 13 to this Registration Statement). See Note
11 to the Company's 1994 Consolidated Financial Statements.
Interest expense increased to $18.8 million, net of $2.1
million of interest costs capitalized for construction projects,
in 1994 as compared to $7.0 million for 1993. The increase in
interest costs relates to the interest on the Old Notes which
were issued during December 1993. Interest expense of $4.8
million in 1993 related to certain loans provided by RII which
were repaid out of the proceeds of the Old Notes.
The Company had a net loss of $32.1 million for 1994 and
accordingly recorded no provision for income taxes. The loss for
tax reporting purposes was different than the net loss for
financial reporting purposes due to differences between the book
and tax basis of the Company's assets. In 1994, the Company
booked a valuation allowance to offset the net deferred tax asset
of approximately $16.0 million arising from differences between
the book and tax basis of the Company's assets, liabilities and
net operating loss carryforwards, because future taxable income
was uncertain.
Liquidity and Capital Resources of the Company Prior to the
Effective Date
Prior to the Effective Date of the Plan of Reorganization,
the Company owned and operated the Bullwhackers Casinos and the
Surface Parking Lot in Colorado and developed and, for a short
period of time operated, the Riverboat Project. The liquidity
and need for capital resources of the Company were materially and
adversely affected by the drain on the Company's resources caused
by the construction of the Riverboat Project and the subsequent
failure of the Riverboat Project to achieve its projected
revenues.
In December 1993, the Company sold $140 million of Old Notes
to various institutional investors in a private placement. The
net proceeds of the sale of the Old Notes were approximately $131
million, of which $42.5 million was used to retire the
construction financing for the Bullwhackers Casinos, $65 million
was used to pay part of the Company's share of the costs of
construction of the Riverboat Project, $10.5 million was used for
predevelopment activities in connection with potential new gaming
ventures and $11.5 million was used for working capital.
Since late 1993, the Bullwhackers Casinos have generated
positive cash flow from operations. This operating cash flow was
used by the Company to provide capital for the Company's efforts
to expand into other jurisdictions, to pay corporate overhead at
the Company and to provide the Company with funds to invest in
GPRI for the Riverboat Project. However, as a result of the
magnitude of the Riverboat Project cost overruns and the failure
of the Riverboat Project to meet its revenue projections because
of the failure of its anticipated market to develop, the
Riverboat Project's losses exceeded the funds available to the
Company. In June 1995, the Company determined that any further
investment in GPRI could jeopardize the ability of the
Bullwhackers Casinos to meet their operating cash and debt
service requirements and would jeopardize the successful
operations of the Bullwhackers Casinos and, as a result, stopped
all Riverboat Project operations.
26
<PAGE>
The Company had anticipated that cash flow from the
Riverboat Project and the Bullwhackers Casinos would provide
sufficient cash flow to pay debt service on the Old Notes.
However, instead of generating positive cash flow, the Riverboat
Project accumulated approximately $50-$60 million of unpaid
obligations, leaving the Company with no ability to meet its debt
service obligations on the Old Notes. Because of the failure of
the Riverboat Project, the Hemmeter Bankruptcy Cases were filed
on November 7, 1995, and the Company and the Colorado
Subsidiaries have continued their business operations as debtors-
in-possession under supervision of the Bankruptcy Court since
that date.
Since the closure of the Riverboat Project, the Bullwhackers
Casinos have generated sufficient cash flow to meet all of the
Company's operating and debt service requirements other than debt
service on the Old Notes. To provide for liquidity if the
current cash flow of the Bullwhackers Casinos were insufficient
for these purposes during the Hemmeter Bankruptcy Cases, and to
finance the down payment on the Silver Hawk facility, the Company
obtained the $7.9 million DIP Facility in November 1995. The
borrowings under the DIP Facility accrue interest at the prime
rate plus 2.75% and are secured by substantially all of the
assets of the Company and its subsidiaries and have
administrative expense priority in the Hemmeter Bankruptcy Cases
which is senior to all other administrative expenses other than
certain professional fees. On April 12, 1996, the Company
borrowed $900,000 under the DIP Facility to finance the $900,000
down payment for the acquisition of the Silver Hawk facility.
Liquidity and Capital Resources of the Reorganized Company
On the effective date of the Plan of Reorganization, the Old
Notes will be cancelled and the Company will issue New Notes in
the aggregate principal amount of $50 million. The New Notes
will bear interest at the rate of 12% per annum, payable semi-
annually, will mature in 2003, will be secured by a lien on
substantially all of the assets of the Company and its Colorado
Subsidiaries, and will be guaranteed by the Colorado
Subsidiaries. During the first twelve months that the New Notes
are outstanding, interest on the New Notes may be paid, at the
option of the Company, by issuing additional New Notes in the
amount of the interest payment which would otherwise be due. As
a result, the Company will have the option of deferring $6
million of interest payments which would otherwise be due in
respect of the New Notes during the first year following the
Effective Date.
The Company is in the process of negotiating the definitive
terms of, and expects to enter into, a credit facility with an
unaffiliated lender (the "Post-Effective Date Credit Facility")
on the Effective Date to replace the DIP Facility. The Post-
Effective Date Credit Facility will provide for total loans of up
to $12.5 million, of which $3.5 million will be available for
general working capital purposes, with the balance being
available to finance or refinance equipment, the construction of
the Parking Garage and construction of a day care facility for
patrons of the Colorado Casinos. Borrowings under the Post-
Effective Date Credit Facility will bear interest at the prime
rate of interest plus 2.375% and will be repayable over 3 to 5
years, depending on the purpose of the loans. The Post-Effective
Date Credit Facility will be secured by first liens on
substantially all of the assets of the Company and its
subsidiaries which will be senior to the liens securing the New
Notes. On or soon after the Effective Date, the Company expects
to use approximately $4 million of loans under the Post-Effective
Date Credit Facility to payoff the DIP Facility and approximately
$3.2 million of loans under the Post-Effective Date Credit
Facility to retire at a discount approximately, $4.1 million of
outstanding debt and capital lease obligations incurred by the
Company to finance equipment.
In April 1996, the Company purchased the Silver Hawk casino
for $2.7 million, of which $900,000 was paid in cash with the
balance being financed by the seller. The majority of the down
payment was borrowed under the DIP Facility and will be
refinanced on the Effective Date with loans under the Post-
Effective Date Credit Facility. The note payable to the seller
of the Silver Hawk facility bears interest at a rate of 9.5% per
annum, provides for monthly principal and interest payments based
on a 20-year amortization with a balloon payment after seven
years and is secured by a first lien on the Silver Hawk facility.
The Company anticipates opening the Silver Hawk casino for
gaming business in August 1996. Prior to opening the Silver
Hawk, the Company anticipates acquiring approximately 200 slot
machines and complete minor interior remodeling. The total cost
of opening the Silver Hawk casino, exclusive of the acquisition
cost of the facility, is estimated to be approximately $2 million.
The majority of the opening costs will be financed through
27
<PAGE>
loans under the Post-Effective Date Credit Facility with
the remainder being paid from cash flow from the operations of
the Bullwhackers Casinos.
The construction of Phase I of the Parking Garage is
expected to cost approximately $5 to $6 million and will be
financed by loans under the Post-Effective Date Credit Facility.
Phase II of the Parking Garage is expected to cost approximately
$5 million. If the Company undertakes construction of Phase II
of the Parking Garage, the construction costs will be financed by
cash flow from operations or loans under the Post-Effective Date
Credit Facility. The Post-Effective Date Credit Facility
requires monthly principal repayments of $100,000 on the portion
of the facility used to construct the Parking Garage upon
completion of Phase I.
The Company expects to finance the approximately $1 to 2
million cost of installing bill validators on slot machines at
the Bullwhackers Casinos or purchasing new slot machines with
bill validators through cash flow from operations or loans under
the Post-Effective Date Credit Facility. The Company also
estimates that the ongoing capital expenditures necessary to keep
its casinos competitive are approximately $2 to $2.5 million per
year. The Company anticipates paying these capital expenditures,
as well as debt service on the CAI Notes, from cash flow from
operations.
The Company believes that the Post-Effective Date Credit
Facility and its operating cash flows will provide sufficient
liquidity and capital resources for its operations. However,
there is no assurance that the Company's estimate of its need for
liquidity and capital resources is accurate or that new business
developments or other unforeseen events will not occur which will
increase those needs. There is also no assurance that the
Company will achieve its estimated cash flow from operations.
Although no additional financing is contemplated at this time,
the Company may seek additional debt or equity financing if
necessary. There can be no assurance that additional financing
will be available to the Company or, if available, will be
available on terms favorable to the Company. Additional debt
financing may require the consent of the holders of the New
Notes. There is no assurance that the Company will be able to
obtain the consent of the holders of the New Notes, if such
consent is necessary.
ITEM 3. PROPERTIES
On the Effective Date of the Plan of Reorganization, the
Company will own, through its wholly owned subsidiaries, the
Colorado Casinos and the Surface Parking Lot. For further
information, see "Item 1, Business - Colorado Casinos."
In January 1996, the Company entered into an amended
sublease for approximately 19,500 square feet of office space
located in Denver, Colorado which the Company occupies as its
corporate offices. The lease expires in October 1997 and
provides for rent of approximately $7,500 per month.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Pursuant to the Plan of Reorganization, all shares of common
stock of the Company outstanding immediately prior to the
Effective Date will be cancelled and 5 million shares of newly
issued common stock of the Company will be issued pro rata to the
holders of the Old Notes and to RII and 138,888 shares of newly
issued common stock will be issued to Mr. Szapor. Because the
Old Notes are primarily held in the names of nominees, the
Company is unable to determine the identity of the Old Note
holders directly. The only source of information available to
the Company concerning the identity of the Old Note holders are
the proofs of claim filed in the Hemmeter Bankruptcy Case. Set
forth below is certain information regarding each person who,
based on those proofs of claim, will be the beneficial owner of
more than 5% of the Company's common stock on the Effective Date,
determined after giving effect to the cancellation of existing
shares and the issuance of new shares of common stock of the
Company on the Effective Date:
28
<PAGE>
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Class
___________________ ____________________ __________
Keystone Group, Inc. 1,207,588<F1> 23.5%
200 Berkeley Street
Boston, MA 02116
Morgens Waterfall Partners
10 E. 50th Street,
Suite 2600
New York, NY 10022 1,092,265<F2> 21.5
PaineWebber, Inc. 989,324<F3> 19.2
1285 Avenue of the Americas,
15th floor
New York, NY 10010
SC Fund, Inc. 591,389 11.5
712 Fifth Avenue
New York, NY 10019
____________________
<F1> The 1,207,588 shares will be held by the following funds
managed by Keystone Group, Inc.: Keystone High Income Bond
Fund (477,916 shares), Keystone Strategic Income Fund
(195,874 shares), Keystone Small Company Growth Fund
(494,094 shares), Equifax, Inc. U.S. Retirement Trust
(26,489 shares), Ampex Retirement Master Trust (11,782
shares) and Buffalo Color Master Trust (1,435).
<F2> The 1,092,265 shares will be held by the following funds
managed by Morgens Waterfall Partners: Restart Partners
(226,877 shares), Restart Partners II LP (324,599 shares),
Restart Partners III LP (224,680 shares), Restart Partners
IV LP (143,275 shares), Restart Partners V LP (57,387
shares), Morgens Waterfall Income Partners (36,902 shares),
MW Employees Retirement Trust (6,769 shares) and The Common
Fund (71,516 shares).
<F3> The 989,324 shares will be held by the following funds
managed by PaineWebber, Inc.: PaineWebber Strategic Income
Fund (13,911 shares), PaineWebber Premier High Income Fund
(83,394 shares), PaineWebber High Income Fund (768,694
shares), All-American Team Trust (73,300 shares) and
PaineWebber Offshore Fund (50,025 shares).
Set forth below is certain information regarding the
beneficial ownership of each person who is nominated to be a
director of the Company on the Effective Date,<F4> each
executive officer of the Company named in the Summary
Compensation Table set out in "Item 6, Executive Compensation,"
who will be such on the Effective Date and all of the directors
and executive officers of the Company who are either nominated to
be or are such on the Effective Date as a group (7 persons):
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Class
___________________ ____________________ __________
Stephen J. Szapor, Jr. 138,888 2.5%
Alan L. Mayer -0- -0-
29
<PAGE>
Richard Rabin -0- -0-
Robert J. Stephens -0- -0-
Franklin S. Wimer -0- -0-
Steve Leonard -0- -0-
Mark Van Hartesvelt -0- -0-
All directors and officers 138,888 2.5%
as a group (7 persons)
____________________
<F4> Because of the necessity that directors of the Company each
obtain a Colorado key gaming license, the Company may
operate with an interim board of directors until such time
as all of the individuals designated as directors obtain
their requisite licenses. The above table does not include
any of the proposed directors who will only serve as such on
an interim basis, none of whom will be shareholders of the
Company.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information with respect to each
of the individuals nominated to be a director of the Company as
of the Effective Date<F1> and each individual who will be an
executive officer of the Company on the Effective Date:
Position Held Director
Continuously Continuously
Name Age Position(s) Since Since
Stephen J. Szapor, Jr. 36 Chief Executive Officer, August 10, 1995 Effective
President and Director Date
Alan L. Mayer 34 Senior Vice President, September 15, 1992 -----
Chief Legal Officer
and Secretary
Richard J. Rabin 49 Senior Vice President August 1, 1995 -----
of Operations
Robert Stephens 28 Chief Accounting Officer October 5, 1995 -----
and Treasurer Effective
Date
Franklin S. Wimer 59 Director
Steve Leonard 42 Director Effective
Date
Mark Van Hartesvelt Director Effective
Date
____________________
<F1> If necessary because of delays in obtaining key licenses for
individuals nominated to serve as directors as of the
Effective Date, Messrs. Mayer and Rabin have agreed to serve
as, and may be elected to serve as, interim directors.
Stephen J. Szapor, Jr. has served as President, Chief
Executive Officer of Hemmeter Enterprises, Inc. since August 1995
and Executive Vice President and Chief Financial Officer since
April 1995. From July 1994 until joining the Company, he served
as the Chief Operating Officer and a member of the board of
directors of Sahara Gaming Corporation, and from June 1993 until
July 1994, he was the Executive Vice President/Chief Financial
Officer of Sahara Gaming Corporation. From October 1986 until
June 1993, Mr. Szapor held several executive positions with
Hollywood Casino Corporation including Assistant to the President
and Vice President Strategic Planning. Mr. Szapor has also held
financial and accounting positions with Merrill Lynch & Co. and
Arthur Andersen LLP. He holds a key license from the Commission
and is a Certified Public Accountant.
Alan L. Mayer has served as Senior Vice President, Secretary
and Chief Legal Officer of the Company and its predecessors since
September 1992. From 1987 to 1992, Mr. Mayer was associated with
Isaacson, Rosenbaum, Woods & Levy in Denver, where he specialized
in real estate, land use planning, finance, corporate and gaming
law. Mr. Mayer is a member of the American Bar Association, the
Colorado Bar Association, the California Bar Association and the
International Association of Gaming Attorneys. He is licensed to
practice law in California and Colorado. He holds a key license
from the Commission and is a member of the Board of Directors of
the Casino Owners Association of Colorado.
Richard Rabin has served as Senior Vice-President of
Operations of the Company since March 1996 and Vice-President,
Finance & Administration of the Company since August 1995. From
1994 until joining the Company, he served as Chief Financial
Officer of a riverboat gaming facility operated by Sahara Gaming
30
<PAGE>
Corporation in Missouri and then as General Manager of a gaming
facility operated by Sahara Gaming Corporation in Nevada. From
1991 to 1994, Mr. Rabin was Chief Financial Officer and Vice
President and, beginning in 1993, also General Manager of the
Glory Hole Saloon and Gambling Hall in Central City, Colorado.
From 1985 until 1991, Mr. Rabin served in various positions in
the gaming industry in Reno, Nevada. Mr. Rabin holds a key
license from the Commission and is a Certified Public Accountant.
Robert J. Stephens has served as Controller, Chief
Accounting Officer and Treasurer since August 1995. Previously,
Mr. Stephens served in various finance and accounting positions
since joining the Company in May 1994. From 1990 to 1994 Mr.
Stephens was associated with Arthur Andersen LLP specializing in
start up and emerging biotechnology companies and the oil and gas
industry. Mr. Stephens is a Certified Public Accountant.
Franklin S. Wimer will become a director of the Company on
the Effective Date upon approval of Colorado Gaming Commission.
Mr. Wimer has been the President of UniRock Management
Corporation, a Denver, Colorado investment banking firm since
January 1988. Prior to forming UniRock Management Corporation,
Mr. Wimer held executive positions with a number of financial
institutions.
Steve Leonard will become a director of the Company on the
Effective Date upon approval of Colorado Gaming Commission. Mr.
Leonard has been President of Pacifica Holding Company, a Denver
based commercial real estate firm since 1990. Prior to
establishing Pacifica Holding Company in 1990, Mr. Leonard held
various executive positions in the real estate and real estate
development industry.
Mark Van Hartsvelt will become a director of the Company on
the Effective Date. Mr. Van Hartsvelt has been President of the
Village at Breckenridge Resort, a Breckenridge, Colorado resort
since 1994. From 1989 to 1994 he was Senior Vice President Sales
and Marketing of Doubletree Hotels Corporation. Prior to 1989,
Mr. Van Hartsvelt served in a number of senior executive
positions in the gaming industry.
ITEM 6. EXECUTIVE COMPENSATION
Summary Compensation Table.
The following table provides information concerning
compensation paid to each of the five most highly compensated
executive officers serving as such at year end 1995, and two
executive officers who would have been among the most highly
compensated had they been employed at year end, for services
rendered by such persons in all positions with the Company.
31
<PAGE>
Long-Term
Compensation
Annual Compensation Awards Payouts
Other Shares
Annual Underlying
Name and Principal Compen- Options/ LTIP
Position Year Salary Bonus sation SARs Payouts
______________________ ____ ________ ________ ______ __________ ________
Stephen J. Szapor, Jr. 1995 $211,728 $ 5,000 $ 0 $ 0 $ 0
President and Chief 1994 0 0 0 0 0
Executive Officer 1993 0 0 0 0 0
since August 10, 1995,
Chief Financial Officer
March, 1995 to
August 10, 1995
Christopher B. Hemmeter 1995 351,182 100,000 0 0 0
Chief Executive Officer 1994 336,709 100,000 0 0 0
December 15, 1993 1993 0 0 0 0 0
to August 10, 1995,
Vice President since
August 10, 1995
Mark M. Hemmeter 1995 194,223
President December 15, 1994 126,977 37,500 0 0 0
1993 to March 27, 1995, 1993 0 0 0 0 0
Executive Vice President
March 27, 1995 to
August 1, 1995, Vice
President since August 1,
1995
Kevin G. DeSanctis 1995 522,688 0 0 0 0
Executive Vice 1994 572,110 0 0 120,000 60,000
President, Chief 1993 0 0 0 0 0
Operating Officer
April 8, 1994 to
March 27, 1995
President and Chief
Operating Officer from
March 27, 1995 to
August 10, 1995
Thomas Robinson 1995 172,706 0 2,415 0 0
Executive Vice 1994 240,569 100,000 0 144,000 0
President, Development 1993 0 0 0 0 0
Inception to July 1995
Alan L. Mayer 1995 111,926 15,000 2,798 0 0
Chief Legal Officer 1994 106,384 30,000 2,144 40,000 0
and Secretary 1993 0 0 0 0 0
Robert J. Stephens 1995 56,745 0 1,410 0 0
Chief Accounting Officer 1994 30,552 3,500 222 0 0
and Treasurer 1993 0 0 0 0
32
<PAGE>
Compensation of Directors
Directors who are officers or employees of the Company will
receive no compensation for service as members of the Board.
Prior to the Effective Date, the Company compensated directors
who were not officers or employees of the Company for their
services by paying such directors annual retainers of $20,000,
paid quarterly and by allowing non-employee directors to
participate in the Company's non-employee director stock plan.
It is anticipated that following the Effective Date, the non-
employee directors of the Company will receive substantially
similar compensation.
Employment and Consulting Agreements
Prior to the Effective Date, the Company had entered into
employment contracts with Christopher B. Hemmeter, Mark M.
Hemmeter, Stephen J. Szapor, Alan L. Mayer and Richard Rabin.
All such contracts will be terminated on the Effective Date. On
the Effective Date, the Company will enter into the following
employment and consulting agreements:
Christopher B. Hemmeter. Pursuant to the Plan of
Reorganization, the Company will enter into a consulting
agreement with Christopher B. Hemmeter pursuant to which the
Company will pay Mr. Hemmeter $29,166.67 per month from the
Effective Date of the Plan of Reorganization through August 1996
in return for services to be rendered thereunder. The consulting
services to be provided to the Company by Mr. Christopher B.
Hemmeter include advice and services related to gaming regulatory
issues and help in identifying potential new business
opportunities.
Mark M. Hemmeter. Pursuant to the Plan of Reorganization,
the Company will enter into a consulting agreement with Mark M.
Hemmeter pursuant to which the Company will pay Mr. Hemmeter
$10,416.67 per month from the Effective Date of the Plan of
Reorganization through November 1996 in return for services to be
rendered thereunder. The consulting services to be provided to
the company by Mr. Mark M. Hemmeter include advice and services
related to gaming regulatory issues, assistance in helping the
Company recover its investment in PRIGSA and help in identifying
potential new business opportunities. The Mark M. Hemmeter
Consulting Agreement will expire on November 30, 1996.
Stephen J. Szapor, Jr. The Company will enter into a new
employment agreement with Stephen J. Szapor, Jr. pursuant to
which Mr. Szapor will serve as president, chief executive officer
and as a director of the Company. Pursuant to this agreement,
Mr. Szapor will earn an initial annual salary of $300,000,
subject to increases based on cost-of-living adjustments and
other mutually agreed factors. As additional compensation, Mr.
Szapor will receive a bonus of $100,000, payable on the Effective
Date, stock grants representing 2.5% of the capital stock of the
Company (determined on a fully diluted basis) on the Effective
Date and will be entitled to participate in the Management
Incentive and Non-Employee Directors Stock Plan and the
Management Cash Bonus Plan. The employment agreement with Mr.
Szapor will provide for payments to Mr. Szapor equal to the
greater of $500,000 or his base salary for the remaining period
of his employment agreement in the event of the termination of
Mr. Szapor's employment by the Company without cause or by Mr.
Szapor for good reason as defined in the employment agreement.
If Mr. Szapor's employment is terminated shortly after the
Effective Date of the Plan of Reorganization, the termination
payments Mr. Szapor receives could be as much as $900,000.
Other Employment Agreements. The Company will enter into
new employment agreements with Alan L. Mayer, the Company's
Senior Vice President, Chief Legal Officer and Secretary, and
Richard Rabin, the Company's Senior Vice President of Operations.
Mr. Mayer and Mr. Rabin will each earn annual salaries of
$130,000, subject to increases based on cost-of-living
adjustments and other mutually agreed factors. Mr. Mayer and Mr.
Rabin will also be entitled to participate in the Company's
Management Incentive Non-Employee Directors Stock Plan and
Management Cash Bonus Plan.
Management Incentive and Non-Employee Director Stock Plan
The Company will establish a Management Incentive and Non-
Employee Director Stock Plan effective on the Effective Date
pursuant to which the senior management of the Company will be
eligible to earn stock grants of up to 7.0% of the capital stock
of the Company (determined on a fully diluted basis) if certain
performance benchmarks as determined by the board of directors of
the Company are achieved and non-employee directors will be
awarded 0.50% of the capital
33
<PAGE>
stock of the Company (also determined on a fully diluted basis).
The plan shall provide for the following participation levels:
Stephen J. Szapor 2.50%
Alan L. Mayer 1.25%
Richard Rabin 1.25%
Robert J. Stephens 0.50%
Other Employees 1.50%
Non-employee Directors 0.50%
_____
7.50%
Management Cash Bonus Plan
The Company will establish a cash incentive plan effective
on the Effective Date for senior management employees in which
the participants will split a bonus pool equal to 15% of the
increase in earnings before interest, taxes, depreciation and
amortization for each plan period commencing with the period
beginning on the Effective Date of the Plan of Reorganization and
ending on December 31, 1996 and each six months thereafter over
the same period in the immediately preceding calendar year
determined, in the case of the periods in 1995 and 1996, without
regard to the effect of the Company's Riverboat Project or the
Company's extraordinary expenses resulting from the Hemmeter or
GPRI Bankruptcy Cases. The Plan will provide that Mr. Szapor
will receive 30% of the bonus pool and remaining plan members
will split the remaining 70% of the bonus pool.
Other Plans
The Company has established a qualified retirement plan,
which permits eligible employees to defer a portion of their
compensation in accordance with the provisions of Section 401(k)
of the Internal Revenue Code. Employee contributions may be
matched by the Company at levels and at times determined by the
Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RII made an acquisition, development and construction loan
to the predecessor of the Company in the principal amount of $12
million (later increased to $12.3 million). At that time, Mr.
Christopher B. Hemmeter was the president and chairman of the
board of RII and the beneficial owner of approximately 2.2% of
RII's outstanding equity securities and Mark M. Hemmeter was
executive vice president, secretary and treasurer and a director
of RII and the beneficial owner of less than 1% of RII's
outstanding equity securities. The loan was secured by a third
mortgage on the real property and improvements comprising
Bullwhackers Central City as well as liens on all personal
property contained therein and $6,551,200 of the principal
thereof was personally guaranteed by Christopher B. Hemmeter. In
1992, RII also made an acquisition, development and construction
loan in the principal amount of $12 million to a predecessor of
the Company secured by a senior leasehold mortgage on
Bullwhackers Black Hawk. The terms and provisions of this loan
were substantially the same as the loan secured by Bullwhackers
Central City except that the loan was not personally guaranteed
by Christopher B. Hemmeter. Both loans obligated the Company to
pay, under certain circumstances, contingent interest equal to a
portion of any increase in the value of the collateral securing
the loans. The $24.3 million of principal, $790,000 of accrued
interest and $700,000 of bonus interest on both of these loans
were repaid in 1993 with $25.8 million of the $131.5 million of
net proceeds to the Company from the offering of the Old Notes.
Upon repayment of the loans, Christopher B. Hemmeter was released
from his guaranty.
On April 21, 1995, the Company borrowed $1 million from RII.
On May 15, 1995, the Company borrowed $2 million from RII on a
secured basis and used $1 million of this loan to repay the April
21, 1995 loan from RII. At that time, Christopher B. Hemmeter
beneficially owned approximately 1.7% of RII outstanding equity
securities and Mark M. Hemmeter beneficially owned less than 1%
of RII's outstanding equity securities. This loan forms the
basis for the RII Claim and will be satisfied pursuant to the
Plan of Reorganization. Currently, both Christopher B. Hemmeter
and Mark M. Hemmeter each own less than 1% of the outstanding
equity securities of RII.
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<PAGE>
The general contractor for the Bullwhackers Casinos held a
construction note (the "Construction Note") which was secured by
a second mortgage on the land and improvements comprising
Bullwhackers Central City. Mr. Christopher B. Hemmeter
personally guaranteed the Construction Note. The Construction
Note was repaid with a portion of the proceeds of the offering of
the Old Notes and Mr. Hemmeter was released from his guarantee.
In 1994, the Company and certain affiliates entered into an
amended consulting agreement with Mr. Daniel P. Robinowitz, a
pre-Effective Date stockholder of the Company of approximately
9.1% on a fully diluted basis, pursuant to which Mr. Robinowitz
was entitled to receive an ownership interest in the Company and
a $3 million fee in exchange for his assistance in obtaining
necessary licensing and other regulatory approvals with respect
to the Company's Louisiana operations. Pursuant to this
agreement, Mr. Robinowitz's right to receive an ownership
interest in the Company was converted in January 1995 into
1,605,739 shares of common stock of the Company. The $3 million
fee was paid to Mr. Robinowitz in March 1994. In addition, Mr.
Robinowitz was paid an initial consulting fee of $2,790,000 for
his services with respect to certain Louisiana projects, of which
$279,000 was allocated to the Company.
In December 1993, the Company reimbursed Christopher B.
Hemmeter in the amount of $225,000 for advances made by him in
1993 to Michigan City Casino & Lodge, Inc., a wholly owned
subsidiary of the Company.
The Company has outstanding advances to the following
affiliates:
December 31
___________________
(in
thousands)
1994 1995
____ ____
Canadian Pavilion Limited Partnership $ 1,323 $ 1,573
Outlaws Casino, Ltd. 876 1,072
RCJV 763 43
RCH Investments, NV 250 259
Hemmeter Partners 344 335
Grand Palais Casino, Inc. 557 587
Officers 585 867
Other 62 35
_______ _______
$ 4,760 $ 4,771
Canadian Pavilion Limited Partnership ("CPLP"), Outlaws Casino,
Ltd. ("Outlaws"), RCH Investments, NV ("RCH") and Hemmeter
Partners are majority owned by Christopher B. Hemmeter, an
officer and controlling shareholder of the Company, and Mark M.
Hemmeter, an officer of the Company. The advances to CPLP,
Outlaws, RCH, and Hemmeter Partners accrue interest at 14% with
interest payable quarterly, and are due on demand. Grand Palais
Casino, Inc. ("GPCI") is a wholly owned subsidiary of Grand
Palais Enterprises, Inc. ("GPEI"), of which certain stockholders
are also majority stockholders of the Company. This advance
accrues interest at 14% and is due on demand. The Company has
fully reserved the amounts of these advances because of
uncertainty as to their collectibility. In July 1994, Kevin G.
DeSanctis, then Executive Vice President and Chief Operating
Officer of the Company, received a $225,000 advance in accordance
with the terms of his employment agreement of which none has been
repaid. In September 1994, Christopher B. Hemmeter, President
and Chief Executive Officer of the Company, was advanced funds
totalling $275,000, accruing interest at prime plus 2%, and due
on demand. In January 1995, an additional $373,000 was advanced
to Mr. Hemmeter on an interest free basis, of which $110,000 has
been repaid. As of December 31, 1995, the amount of Mr.
Hemmeter's advances that remained unpaid totalled $641,900.
In 1994, the Company established a reserve of $1 million for
the portion of the affiliate advances described above that the
Company believed may not be collectible. This reserve was not
allocated to any particular affiliate advances. In 1995, due to
the deteriorating financial condition of Christopher B. Hemmeter,
Kevin G. DeSanctis and the affiliate companies listed in the
above table who received those advances and possible defenses
that they could raise, the Company provided a reserve for the
remainder of the amounts owed the Company by these individuals
and affiliates. Although the affiliate advances are fully
reserved, they have not been forgiven as part of the Plan of
Reorganization. The Company is
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assessing its strategy in terms of pursuing collection of these
advances. The Company has agreed not to exercise any rights of
set-off that the Company may have in respect of the payments
which the Company will make to Christopher B. Hemmeter under his
consulting agreement with the Company, and the Company, as a
result of the Plan of Reorganization, does not have any obligations
to the other obligors which would give it set-off rights.
Hemmeter Partners, an affiliate of Christopher B. Hemmeter,
leased an aircraft that Mr. Hemmeter used for business and
personal purposes. In exchange for Mr. Hemmeter making the
aircraft available to the Company for business purposes, the
Company agreed to pay Mr. Hemmeter's affiliate approximately
$100,000 per month and to pay the salary and benefits of the
aircraft pilot and co-pilot, which totaled approximately $125,000
per year. Direct payments to Hemmeter Partners totalled $1.5
million and $420,000 for 1994 and 1995, respectively. Payments
made by the Company with respect to the aircraft represent the
Company's pro rata share of the costs and expenses associated
with the aircraft and are adjusted based on actual use of the
aircraft. The Company ceased using the aircraft and terminated
this arrangement as of May 1995.
In 1992 and 1993, GPCI undertook a private offering of
senior secured exchangeable notes. Certain of the Company's
majority stockholders and warrantholders, including Christopher
B. Hemmeter and Daniel P. Robinowitz, are also stockholders of
GPCI's parent company, GPEI. In September 1993, $7.5 million of
the net proceeds of GPCI's private offering were loaned to GPRI.
The loan was evidenced by a demand note payable to GPCI which
accrued interest at the rate of 12% per annum. The loan was
repaid with proceeds from the sale of the Old Notes. As
additional consideration, the GPCI noteholders were issued
warrants to purchase 2,980,986 shares of common stock of the
Company. All warrants will be extinguished pursuant to the Plan
of Reorganization.
GPCI also made additional advances to GPRI on an as needed
basis. In 1993, the advances totaled $2.2 million, accrued
interest at 12% and were unsecured. Proceeds from the Old Notes
were used to repay $1.70 million of the advances. The remaining
$490,000 was repaid in the first quarter of 1994. Through
December 31, 1993, GPCI also paid certain overhead costs and
expenses on behalf of GPRI, which amounts were not material.
The Company paid $1. 5 million, $1.3 million and $624,000 to
the law firm of Shefsky, Froelich & Devine Ltd. for legal
services rendered to the Company in 1993, 1994 and 1995,
respectively. Cezar M. Froelich, a pre-Effective Date director
and stockholder of the Company of 1.4% on a fully diluted basis,
is a member of that firm. Shefsky, Froelich & Devine Ltd.
provided legal services to the Company until February 9, 1996.
Any further payments to Shefsky, Froelich & Devine Ltd. are
subject to Bankruptcy Court approval.
ITEM 8. LEGAL PROCEEDINGS
On July 26, 1995, an involuntary Chapter 7 bankruptcy
petition was filed against GPRI, a wholly owned subsidiary of the
Company, in the United States Bankruptcy Court for the Eastern
District of Louisiana. The involuntary Chapter 7 bankruptcy case
was converted to a voluntary Chapter 11 case on July 27, 1995.
On November 7, 1995, the Company and certain of its other
subsidiaries commenced voluntary Chapter 11 bankruptcy cases in
the United States Bankruptcy Court for the District of Delaware.
On December 27, 1995, venue of these cases was transferred to the
United States Bankruptcy Court for the Eastern District of
Louisiana. For a more complete description of these bankruptcy
cases, see "Item 1, Business - Background of Bankruptcy; Plan of
Reorganization."
In September 1995, Daniel P. Robinowitz, a pre-Effective
Date stockholder of the Company, filed a stockholders derivative
action against the directors of the Company in the United States
District Court for the Eastern District of Louisiana (the
"Robinowitz Derivative Action"). The complaint alleges in
general that the Company, through its board of directors,
mismanaged the affairs of the Company. Because the Company filed
bankruptcy prior to any responsive pleadings being filed, no
activity has occurred in this case. The Company appointed Mr.
Szapor to serve as a special litigation committee for the board
of directors of the Company and he retained independent counsel
in October 1995 to investigate the allegations raised by the
complaint.
During June 1995, CAI filed an action against the Company,
BWBH, Inc., BWCC, Inc., Christopher B. Hemmeter and Mark M.
Hemmeter in the District Court for the City and County of Denver,
Colorado, seeking to enforce guarantees allegedly provided by the
defendants of an equipment lease provided to GPRI. On
September 14, 1995, the
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court granted summary judgment in favor of CAI and against the
defendants in the amount of $4,477,950.26, plus interest. The
Company, its subsidiaries and the Hemmeters, have appealed from
the trial court's judgment and that appeal is currently pending
in the Colorado Court of Appeals.
On July 7, 1995, CAI also filed an action against the
Company, Messrs. Szapor and Mayer, BWBH, Inc., BWCC, Inc. and
GPRI. in the District Court for the City and County of Denver,
Colorado alleging that, among other things, they negligently and
fraudulently induced it into entering into the equipment lease
which was the subject of its June 1 1995 lawsuit. Messrs. Szapor
and Mayer filed answers denying the allegations in the complaint
and have asserted a counterclaim against CAI for abuse of
process.
On February 6, 1996, both lawsuits filed by CAI were
settled, subject to the consummation of the Plan of
Reorganization. Under the settlement, CAI has agreed to settle
and dismiss both lawsuits as they relate to all defendants and to
release all claims asserted in those lawsuits. In consideration
of the dismissal of the lawsuits and releases, the Company has
agreed to issue the CAI Notes on the Effective Date in the
respective principal amounts of $1,621,329.35 and $3,000,000 and
Messrs. Szapor and Mayer have agreed to release their
counterclaims. See "Item 1, Business - Background of Bankruptcy;
Plan of Reorganization."
Pursuant to the Plan of Reorganization, certain claims by
the Company against third parties, including the Robinowitz
Derivative Action, are assigned to the Litigation Trust. All
legal proceedings pending against the Company or its Colorado
Subsidiaries prior to the Effective Date will be settled pursuant
to the Plan of Reorganization. As a result, there will be no
litigation pending against the Company or its Colorado
Subsidiaries on the Effective Date. The determination by the
Litigation Trust whether or not to pursue any causes of action
assigned to it will have no material impact on the Company or the
Colorado Subsidiaries.
The Plan of Reorganization provides that the Company's
obligation to indemnify Messrs. Szapor and Mayer against any
claims asserted against them as a result of their service as
employees of the Company, both before and after the commencement
of the Hemmeter Bankruptcy Cases, will not be affected by the
Hemmeter Bankruptcy Cases and that the Company will assume any
obligations of GPRI to indemnify Messrs. Szapor and Mayer against
claims arising as a result of their service with GPRI. The Plan
of Reorganization also provides that Messrs. Szapor and Mayer
will be released from any liability in respect of causes of
action assigned to the Litigation Trust.
The Plan of Reorganization also provides that the Company's
obligations to indemnify its other officers and employees who are
employed by the Company on the date of commencement of the
Hemmeter Bankruptcy Cases, other than Christopher B. Hemmeter and
Mark M. Hemmeter (collectively, the "Hemmeters"), against claims
against them as a result of their service with the Company after
the commencement of the Hemmeter Bankruptcy Cases will not be
affected by the Hemmeter Bankruptcy Cases and that the Company
will assume any similar indemnity obligations of GPRI.
The Plan of Reorganization also requires the Company to
indemnify its pre-Effective Date directors other than the
Hemmeters (the "Independent Directors") against any claims
asserted against them as a result of their service as directors
of the Company if the final report of the Independent Litigation
Counsel indicates that there is no basis for pursuing any of the
potential claims against them reviewed by the Independent
Litigation Counsel. The Company's maximum indemnity obligation
for all of the Independent Directors is capped at $500,000 in the
aggregate. Although the Company has no direct indemnity
obligations with respect to claims against the Hemmeters, if a
claim is asserted against both the Independent Directors and the
Hemmeters, the Hemmeters will be entitled to be represented by
the counsel representing the Independent Directors at the expense
of the Company to the extent that the claims are based on the
Hemmeters' actions as directors of the Company.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established United States public trading market
for the common stock of the Company. Prior to the Effective
Date, the common stock of the Company was held by 11
stockholders. Immediately following the Effective Date, the
Company believes that its common stock will be owned by
approximately 20 to 30 stockholders.
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The shares of common stock of the Company were not
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any similar state law and, prior to the
Effective Date, could be sold only pursuant to an effective
registration or an applicable exemption from registration.
Pursuant to the Plan of Reorganization, the common stock of the
Company may be sold pursuant to Section 1145 of the United States
Bankruptcy Code which generally, and subject to certain
qualifications, exempts from registration securities issued
pursuant to the terms of a plan of reorganization. Because there
has never been a public market for any of the Company's common
stock, the Company is unable to indicate the number of shares of
common stock which, if offered to the public, would have a
material effect on the market price of the Company's common
stock.
On the Effective Date, the Company will be obligated to
register its common stock and the New Notes under the Securities
Act and to use its best efforts to keep a registration statement
continuously in effect covering its common stock and the New
Notes for a period of three years following the Effective Date.
Thereafter, stockholders of the Company and holders of New Notes
holding 5% or more of the outstanding shares of common stock of
the Company or New Notes, as the case may be, will be able to
request that the Company register their stock or New Note during
the two years following the expiration of such three year period.
The Company has never paid dividends on its common stock.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
On December 15, 1993, the Company sold $140,000,000 in
principal amount of its Old Notes in a private placement pursuant
to Regulation D under the Securities Act. The Company believes
that all of the purchasers of such notes were "accredited
investors" within the meaning of Regulation D and that the Notes
were not offered to prospective purchasers who were not
accredited investors. Salomon Brothers Inc served as placement
agent for the sale of the Old Notes. Each note purchaser also
received 12 warrants to purchase 1.041667 shares of common stock
of the Company (subject to certain anti-dilution provisions) for
each $1,000 of principal amount of Old Notes purchased. The
aggregate offering price of the Old Notes and the warrants was
$140,000,000, of which $4,900,000 was paid to Salomon Brothers
Inc as a placement fee.
On June 15 and December 15, 1994, and June 15, 1995, the
Company issued additional Old Notes in the respective principal
amounts of $8,117,000, $8,884,000 and $9,420,000 to the then
holders of the Old Notes in payment of the interest then due and
payable on the outstanding Old Notes.
On December 17, 1993, the Company issued 10,269,641 shares
of its common stock and 5,380,359 warrants to purchase shares of
common stock for an exercise price of $.01 per share to the
owners of certain precedessors of the Company and its Colorado
Subsidiaries in exchange for the assets of these precedessors. A
total of 1,427,927 of the warrants have been exercised since
December 17, 1993 for an aggregate consideration to the Company
of $14,279.27. These shares were issued pursuant to Section 4(2)
of the Securities Act.
Pursuant to the Company's Omnibus Stock and Incentive Plan,
the Company granted employees the right to receive 130,000 shares
of its common stock provided that the restrictions to which such
grants were subject were satisfied. A total of 33,667 of these
shares were issued to employees in 1995. Each of the five non-
employee directors of the Company were each awarded 1,000 shares
of ;common stock of the Company in December 1993. The shares
issued to employees and directors were issued pursuant to Section
4(2) of the Securities Act.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
Common Stock
Immediately prior to the Effective Date, the Company's
authorized capital consisted of (i) 50,000,000 shares of common
stock, par value $.01 per share (the "Common Stock"), of which
11,847,902 shares were issued and outstanding and (ii) 2,000,000
shares of preferred stock, par value $.01 per share, of which no
shares were issued and outstanding. Effective on the Effective
Date, the Company's charter will be amended to eliminate the
Company's preferred stock and to reduce the number of authorized
shares of Common Stock to 20,000,000. Pursuant to the Plan of
Reorganization, all
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shares of Common Stock outstanding immediately prior to the
Effective Date will be cancelled on the Effective Date and
5 million shares of Common Stock will be issued to the holders
of the Old Notes and the RII Claim and 138,888 shares of Common
Stock will be issued to Mr. Szapor.
Holders of Common Stock are entitled to one vote for each
share held in the election of directors and on all other matters
submitted to a vote of stockholders, and do not have cumulative
voting rights. Because stockholders do not have cumulative
voting rights, the stockholders of a majority of the shares of
Common Stock entitled to vote in any election of directors may
elect all of the directors standing for election.
Stockholders of Common Stock will be entitled to receive
ratably such dividends, if any, as may be declared by the Board
out of funds legally available therefor. Upon the liquidation,
dissolution or winding-up of the Company, the stockholders of
Common Stock will be entitled to receive ratably the net assets
of the Company available after payment of all debts and other
liabilities. Stockholders of Common Stock have no preemptive,
subscription, redemption or conversion rights. All shares of the
Common Stock will be fully paid and non-assessable when issued
upon receipt of the purchase price therefor.
Colorado Gaming Regulations
Pursuant to Colorado Gaming Regulations, the Commission has
broad powers to require stockholders of the Company to provide it
with information and to determine the suitability of any
stockholders of the Company to hold voting interests in the
Company. If the Commission determines that a person or entity is
not suitable to own a voting interest in the Company, whether
directly or indirectly, the Company may be sanctioned (including
by loss of any gaming licenses) unless such person or entity
disposes of its voting interests. In addition, the Colorado
Regulations prohibit a licensee from paying dividends, interest
or other remuneration to any person found to be unsuitable, or
from recognizing the exercise of any voting rights by any person
found to be unsuitable. The Colorado Regulations require a
casino licensee to include in its corporate charter provisions to
permit the repurchase of the voting interests of any person who
the Commission finds unsuitable. For a more complete description
of these regulations, see "Item 1, Business - Colorado Gaming
Regulations." The Company has included the required provisions
in its Amended and Restated Certificate of Incorporation. See "-
Certain Charter and Bylaws Provisions."
A person or entity may not sell, lease, purchase, convey,
acquire or pledge any shares in a holder of a gaming license
without the prior approval of the Commission, except for sales or
other transactions involving less than a 5% interest in a
publicly traded licensee. Therefore, until the Company becomes
subject to the reporting requirements of the Exchange Act, no
stockholder of the Company may transfer any Common Stock without
the prior approval of the Commission. See "Item 1, Business-
Colorado Gaming Regulations."
Certain Charter and Bylaw Provisions
To enable the Company to secure and maintain the business
and other regulatory approvals necessary for operating a gaming-
related business, the Company's Amended and Restated Certificate
of Incorporation provides that the Company may not issue any
voting securities except in compliance with the rules of any
gaming authority. The Company's Amended and Restated Certificate
of Incorporation also provides that all transfers of voting
securities of the Company must be in compliance with applicable
gaming authority rules and if any gaming authority issues an
order disqualifying a person from owning shares of Common Stock,
the Company may redeem the stock of the disqualified holder
unless Common Stock is transferred to a person found by the
Commission to be suitable within 60 days from the finding of
unsuitability. See "- Colorado Gaming Regulations." The
redemption price will be equal to the lesser of the holders
investment in the voting securities or the current market price
as of the finding of unsuitability. No holder of voting
securities of the Company which has been found to be unsuitable
may vote any such voting securities and such voting securities
shall not be deemed outstanding for quorum or other purposes and
the disqualified holder shall not be entitled to any dividends or
other remuneration with respect to such voting securities. See
Item 1, "Colorado Gaming Regulations."
As permitted by the provisions of the Delaware General
Corporation Law (the "DGCL"), the Company's Amended and Restated
Certificate of Incorporation eliminates in certain circumstances
the liability of directors of the Company for a breach of their
fiduciary duty as directors. These provisions do not eliminate
the liability of a director for: (i) breach
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of the director's duty of loyalty to the Company or its stockholders;
(ii) acts or omissions by a director not in good faith or which
involve intentional misconduct or a knowing violation of the law;
(iii) liability arising under Section 174 of the DGCL (relating
to the declaration of dividends and purchase or redemption of shares
in violation of the DGCL); or (iv) any transaction from which the
director derived an improper personal benefit. In addition,
these provisions do not eliminate the liability of a director for
violations of federal securities laws, nor do they limit the
rights of the Company or its stockholders, in appropriate
circumstances, to seek equitable remedies such as injunctive or
other forms of non-monetary relief. Such remedies may not be
effective in all cases.
The Company's Amended and Restated Certificate of
Incorporation and Bylaws provide that the Company shall indemnify
all directors and officers of the Company to the full extent
permitted by the DGCL. Under such provisions, any director of
officer, in his capacity as such, who is made or threatened to be
made a party to any suit or proceeding, may be indemnified if the
Board determines such director of officer acted in good faith and
in a manner he reasonably believed to be in or not opposed to the
best interest of the Company. The Company's Amended and Restated
Certificate of Incorporation, Amended and Restated Bylaws and the
DGCL further provide that such indemnification is not exclusive
of any other rights to which such individuals may be entitled
under the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated the Bylaws, or under any
agreement, vote of stockholders or disinterested directors or
otherwise.
The Company's Amended and Restated Certificate of
Incorporation provides initially for a five member board of
directors with each director serving a one year term. Directors
may be removed with or without cause.
12% Senior Secured Pay-In-Kind Notes Due 2003
General
The New Notes will be issued on the Effective Date to the
holders of the Old Notes and the RII Claim as fully registered
notes, without coupons, under an Indenture to be dated as of the
Effective Date (the "Indenture") between the Company, its
Colorado Subsidiaries and IBJ Schroder Bank & Trust Co., as
trustee (together with any successor, the "Trustee"). This
summary of the material terms of the New Notes does not purport
to be complete and is subject to, and qualified in its entirety
by, the provisions of the Indenture. Capitalized terms used
under this heading which are not otherwise defined herein shall
have the meanings ascribed thereto in the Indenture.
Terms
The New Notes will be senior secured obligations of the
Company and will mature on [________]. The aggregate principal
amount of New Notes which may be authenticated and delivered
under the Indenture is limited to $50,000,000 (plus any Secondary
Notes, as described below) except for New Notes authenticated and
delivered upon registration of transfer of, or in exchange for,
other New Notes.
Interest on the New Notes will accrue at the rate of 12% per
annum, computed on the basis of a 360-day year comprised of
twelve 30-day months. Interest will be payable commencing
[__________] and semiannually thereafter on [___________] and
[___________] of each year, to the holders of record of New Notes
at the close of business on [___________] and [___________]
immediately preceding such interest payment date.
The Company may, at its option but only provided that an
effective registration statement under the Securities Act covers
such issuance or such issuance is exempt from registration under
the Securities Act, pay interest on the New Notes through the
issuance of additional New Notes (the "Secondary Notes") in an
aggregate principal amount equal to the interest that would be
payable if such interest were paid in cash (provided, however,
that amounts less than $1,000 shall be payable in cash). The
terms of the Secondary Notes shall be identical to the terms of
the New Notes, except that interest on the Secondary Notes is
payable only in cash. All references to "New Notes" herein
shall, unless the context otherwise requires, also refer to any
Secondary Notes.
The New Notes will be issued only in denominations of $1,000
and integral multiples of $1,000. Principal of, premium, if any,
and interest on the New Notes will be payable at the office or
agency of the Company maintained for
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that purpose, provided that upon the agreement of the Company and
a holder of a New Note (a "Holder"), payments of interest and
principal of any New Note may be made directly to the Holder of
such New Note. The New Notes will be transferrable at the
corporate trust office of the Trustee located at [ ].
No service charge will be made for any registration of transfer
or exchange of the New Notes, except for any tax or other
governmental charge that may be imposed in connection therewith.
Redemption
Optional Redemption. The New Notes will be redeemable, at
the election of the Company, on or after the fourth anniversary
of the Issue Date of the New Notes, at the redemption prices
(expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest to the redemption date, if
redeemed during the 12-month period beginning on [___________] of
the years indicated below:
Year Percentage
____ __________
2000 104%
2001 103%
2002 and thereafter 102%
Mandatory Redemption. Notwithstanding any other provision
of the Indenture, if any Gaming Authority requires that a Holder
or beneficial owner of New Notes must be licensed, qualified or
found suitable under any applicable Gaming Law, such Holder or
beneficial owner must apply for a license, qualification or a
finding of suitability within the required time period after
being requested to do so by the Gaming Authority. If such Holder
or such beneficial owner is not so licensed, qualified or found
suitable within the period provided therefor by such Gaming
Authority, the Company shall have the right (i) to require such
Holder or beneficial owner to dispose of such Holder's or
beneficial owner's New Notes within 30 days of receipt of notice
of the Company's election or such earlier date as may be ordered
by such Gaming Authority; or (ii) to call for a redemption of the
New Notes of such Holder or beneficial owner at a price equal to
the lesser of 100% of the principal amount thereof or the price
at which such Holder or beneficial owner acquired the New Notes,
plus, in either case, accrued interest to the earlier of the date
of redemption or the date of the finding of unsuitability by such
Gaming Authority (which may be less than 30 days following the
notice of redemption, if so ordered by such Gaming Authority).
The Company is not responsible for any costs or expenses that any
Holder may incur in applying for a license, qualification or
finding of suitability.
Selection and Notice. In the event that less than all of
the New Notes are to be redeemed at any time, selection of New
Notes for redemption will be made by the Trustee on a pro rata
basis, by such method as the Trustee shall deem fair and
appropriate (provided that no New Notes in a principal amount of
$1,000 or less shall be redeemed in part). Unless otherwise
specified herein, notice of redemption shall be mailed by first
class mail not less than 30 days nor more than 60 days before the
redemption date to each Holder to be redeemed at its registered
address. If any New Note is to be redeemed in part only, the
notice of redemption that relates to such New Note shall state
the portion of the principal amount thereof to be redeemed. On
and after the redemption date, interest will cease to accrue on
New Notes or portions thereof called for redemption.
No Sinking Fund
No sinking fund will be established with respect to the New
Notes.
Mandatory Offers to Purchase
Offer to Purchase Upon Change of Control. The Company is
obligated to make an offer to purchase all outstanding New Notes
at a purchase price of 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase if a
Change of Control of the Company occurs. A Change of Control
includes (i) the sale or other disposition of substantially all
of the Company's assets; (ii) the liquidation or dissolution of
the Company; (iii) the acquisition by any person or group (within the
meaning of Section 13(d) and 14(d) of the Exchange Act) of beneficial
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ownership or the right to acquire, whether immediately
or only after the passage of time, of more than 50% of all
classes of capital stock of the Company then outstanding normally
entitled to vote for the election of directors; (iv) during the
twelve months following the Issue Date of the New Notes, a change
in the composition of the Board of Directors of the Company such
that a majority of the directors of the Company nominated to be
such on the Issue Date cease to be directors of the Company
(other than as may be caused by the replacement of interim
directors who are serving as directors only until the individuals
named to serve as directors on the Issue Date receive Commission
approval). If a Change of Control occurs, the Company shall,
within 15 days, notify the Trustee in writing of such occurrence,
and the Trustee shall, within 15 days following receipt of notice
to the Trustee, notify the Holders of such occurrence. Such
notice from the Company shall include an offer to purchase all
New Notes then outstanding at a purchase price equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if
any, to the payment date. The purchase offer by the Company must
remain open for at least 20 business days from the date of the
Trustee's notice. The obligation of the Company to purchase the
New Notes upon a Change of Control may not be amended or waived
without the concurrence of the Holders of not less than 66-2/3%
of the aggregate principal amount of the New Notes then
outstanding. See "- Amendments and Waivers," below. There can
be no assurance that the Company will have sufficient funds to
purchase the New Notes upon a Change of Control.
Other Offers to Purchase. The Company is also obligated to
make offers to purchase New Notes at a purchase price of 101% of
the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of purchase in an amount equal to the Net
Cash Proceeds of certain sales or other dispositions of assets or
certain events of loss. See "- Certain Covenants - Restricted
Asset Sales" and "- Application of Net Cash Proceeds in Event of
Loss," below.
Guarantee of New Notes
On the Issue Date of the New Notes, the New Notes and the
Company's obligations under the Indenture are irrevocably and
unconditionally guaranteed by the Guarantors. The Guarantees of
the Guarantors are in addition to (and not in substitution for)
any other security for the New Notes and may not be revoked by
the Guarantor until all guaranteed obligations have been
indefeasibly paid and performed in full.
Security
The New Notes are secured by a perfected lien on certain
Collateral of the Company and the Guarantors, including all of
the capital stock of the Guarantors owned by the Company and on
substantially all of the assets of the Company and the
Guarantors, whether owned on the Issue Date or thereafter
acquired, including the Colorado Casinos, the Surface Parking Lot
and, if and when constructed, the Parking Garage through
appropriate Security Documents in favor of the Trustee as
Collateral Agent.
The liens securing the New Notes will be subordinate only to
those liens defined in the Indenture as "Permitted Liens" which
include: (i) liens securing credit facilities providing for an
aggregate principal amount of indebtedness of up to $17,500,000
incurred pursuant to permitted credit facilities; (ii) certain
specified liens on certain assets of the Company or the
Guarantors in existence on the date of the Indenture; (iii) liens
on the Silver Hawk casino securing the deferred portion of the
purchase price thereof; (iv) liens encumbering after acquired
property of the Company or a Guarantor which were in existence
when the encumbered property was acquired and which were not
created in connection with the acquisition; (v) certain statutory
liens, such as mechanics or materialmen's liens and tax liens, to
the extent that the obligation secured is not delinquent or is
being contested in good faith; and (vi) leases, subleases,
easements, rights-of-way and other minor title irregularities
which do not materially interfere with the business of the
Company or any of its subsidiaries.
Provided that no Event of Default then exists, the Company
is entitled to obtain a release of any lien securing the New
Notes with respect to any property of the Company sold or
otherwise disposed of in the ordinary course of business
(including the sale of gaming and other equipment as part of a
program to replace or upgrade gaming or such other equipment) up
to $1,500,000 in the aggregate in any 12-month period (an
"Unrestricted Asset Sale"). The Company is also entitled to
obtain a release of any lien securing the New Notes with respect
to any property sold or otherwise transferred in any other
permitted asset sale provided that the Company complies with
certain reinvestment or Note repurchase obligations. See "-
Certain Covenants - Restricted Asset Sales.
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The proceeds of any sale of the Collateral in whole pursuant
to the Indenture and the related Security Documents following an
Event of Default may not be sufficient to satisfy payments due on
the New Notes. In addition, the ability of the Holders to
realize upon the Collateral may be limited pursuant to gaming
laws as described below, in the event of a bankruptcy or pursuant
to other applicable laws, including securities laws.
Certain Gaming Law Limitations. The Trustee's ability to
foreclose upon the Collateral will be limited by relevant Gaming
Laws, which generally require that persons who own or operate a
casino or possess or sell gaming equipment hold a valid gaming
license. No person can hold a license in the State of Colorado
unless the person is found qualified or suitable by the relevant
Gaming Authorities. In order for the Trustee to be found
qualified or suitable such Gaming Authorities would have
discretionary authority to require the Trustee and any or all of
the Holders to file applications, be investigated and be found
qualified or suitable as a casino licensee or as a landlord or
landlords of a gaming establishment. The applicant for
qualification for a suitability determination or for licensing
must pay all costs of such investigation. If the Trustee is
unable or chooses not to qualify, be found suitable or be
licensed to own, operate or sell such assets, it would have to
retain an entity licensed to operate or sell such assets. In
addition, in any foreclosure sale or subsequent resale by the
Trustee, licensing requirements under the relevant Gaming Laws
may limit the number of potential bidders and may delay any sale,
which may have an adverse effect on the sale price of such
Collateral. In addition, under Colorado law, Holders may be
required to file personal history and financial background
information with the Gaming Authorities and to be found suitable
in order for the Trustee to foreclose on gaming equipment and the
Colorado Casinos. Therefore, the practical value of realizing on
the Collateral may, without the appropriate approvals, be
limited.
Certain Bankruptcy Limitations. The right of the Trustee to
repossess and dispose of the Collateral upon the occurrence of an
Event of Default is likely to be significantly impaired by
applicable bankruptcy law if a bankruptcy proceeding were to be
commenced by or against the Company or the Company Subsidiaries
prior to the Trustee having repossessed and disposed of the
Collateral. Under the Bankruptcy Code, a secured creditor such
as the Trustee is prohibited from repossessing its security from
a debtor in a bankruptcy case, or from disposing of security
repossessed from such debtor, without bankruptcy court approval.
Moreover, the Bankruptcy Code permits the debtor to continue to
retain and to use Collateral owned as of the date of the
bankruptcy filing (and the proceeds, products, rents or profits
of such Collateral) to the extent provided by the Security
Documents and applicable nonbankruptcy law even though the debtor
is in default under the applicable debt instruments, provided
that the secured creditor is given "adequate protection." The
meaning of the term "adequate protection" may vary according to
circumstances, but it is intended in general to protect the value
of the secured creditor's interest in the Collateral and may
include, if approved by the court, cash payments or the granting
of additional security for any diminution in the value of the
Collateral as a result of the stay of repossession or disposition
or any use of Collateral by the debtor during the pendency of the
bankruptcy case. In view of the lack of a precise definition of
the term "adequate protection" and the broad discretionary power
of a bankruptcy court, it is impossible to predict how long
payments under the New Notes could be delayed following
commencement of a bankruptcy case, whether or when the Trustee
could repossess or dispose of the Collateral or whether or to
what extent Holders would be compensated for any delay in payment
or loss of value of the Collateral through the requirement of
"adequate protection."
Certain Covenants
The following are certain of the covenants with which the
Company and each Company Subsidiary must comply:
Limitation on Indebtedness. The Company shall not, and
shall not permit any Company Subsidiary to, directly or
indirectly, incur any Indebtedness other than:
(a) Indebtedness under certain permitted credit
facilities in an aggregate principal amount not to
exceed $17,500,0000.
(b) Indebtedness under the New Notes, the Indenture
and the Security Documents;
(c) Indebtedness if, immediately after giving pro
forma effect to the incurrance thereof, the
Consolidated Coverage Ratio would be greater than
1.75 to 1 in the case of Indebtedness
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incurred prior to January 1, 1997, or 2.0 to 1 in
the case of Indebtedness incurred after December 31,
1997; and
(d) The Guarantee made by any Company Subsidiary which
is or shall become a Guarantor.
Limitation on Restricted Payments. The Company shall not,
and shall not permit any Company Subsidiary to, make, directly or
indirectly, any Restricted Payment, including (i) any declaration
or payment of any dividend or similar payments in respect of the
capital stock of the Company or a Company Subsidiary (other than
dividends payable solely in capital stock or payments of
dividends on capital stock of a Company Subsidiary payable to the
Company or to Company Subsidiary which is wholly owned by the
Company); (ii) any purchase, defeasance, redemption or other
acquisition or retirement for value of any capital stock, or any
warrants, rights or options to purchase any capital stock, of the
Company or any Company Subsidiary; (iii) any payment of principal
on any Indebtedness which is subordinated in right of payment to
the New Notes, or (iv) any loan, stock purchase or other
Investment in any Person that will not be a wholly owned Company
Subsidiary of the Company immediately after giving effect to such
loan, stock purchase or other Investment, if after giving effect
thereto, on a pro forma basis:
(a) a Default or Event of Default shall have occurred
and is continuing or would occur as a consequence thereof;
(b) immediately after giving effect to such Restricted
Payment, the Company could not incur at least $1.00 of
Indebtedness and maintain the Consolidated Coverage Ratio
required for the incurrance of additional debt; or
(c) the aggregate of all Restricted Payments declared
or made after the Issue Date exceeds the sum of: (i) 50% of
Consolidated Net Income (or in the event such Consolidated
Net Income shall be a deficit, minus 100% of such deficit)
accrued during the period (treated as one accounting period)
commencing on the first full quarter after the Issue Date,
to and including the last day of the fiscal quarter ended
immediately prior to the date of each such calculation,
minus (ii) 100% of the amount of any write downs, write-
offs, or negative extraordinary charges not otherwise
reflected in Consolidated Net Income during such period,
plus (iii) an amount equal to the aggregate Net Cash
Proceeds received by the Company from the issuance or sale
(other than to a subsidiary) of its Capital Stock (excluding
Disqualified Stock, but including capital stock issued upon
conversion of convertible Indebtedness and from the exercise
of options, warrants or rights to purchase capital stock,
other than Disqualified Stock, of the Company) after the
Issue Date;
provided, however, that the foregoing provisions will not
prevent, provided that no Default or Event of Default shall have
occurred and is continuing at the time of the restricted payment:
(i) the payment of any dividend within 60 days after the date of
its declaration if, at the date of declaration, such payment
would be permitted by the foregoing provisions; (ii) the payment
of dividends or the making of distributions solely in shares of
capital stock of the Company; and (iii) Restricted Payments not
otherwise permitted by clauses (i) through (iii) above in an
amount not exceeding $200,000 in any calendar year.
Limitation of Liens. The Company shall not, and shall not
permit any Company Subsidiary to, create, incur, assume or suffer
to exist any lien of any kind upon any of its property or assets
(including, without limitation, any income or profits) now owned
or hereafter acquired by it, other than Permitted Liens.
Limitation on Dividends and Other Payment Restrictions
Affecting Company Subsidiaries. The Company shall not, and shall
permit any Company Subsidiary to, directly or indirectly create
or otherwise cause or suffer to exist any consensual encumbrance
or restriction on the ability of any Company Subsidiary to pay
dividends, make distributions on the capital stock of such
Company Subsidiary, pay any obligation to the Company or a
Company Subsidiary, or otherwise transfer assets or make or pay
loans to the Company or any Company Subsidiary, except: (i)
restrictions imposed by the Security Documents; (ii) customary
non-assignment provisions restricting subletting or assignment of
any lease entered into in the ordinary course of business; (iii)
restrictions imposed by Gaming Laws or any Gaming Authority; (iv)
restrictions under any agreement relating to any property, assets
or business acquired by the company or its Company Subsidiaries,
which restrictions are applicable only to the assets or business
acquired; (v) any contractual encumbrance imposed by the
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incurrance of any Indebtedness permitted hereunder, provided such
incumbrance does not restrict the payment of dividends to the
Company or any Company Subsidiary or the payment of Indebtedness
owed to the Company or any Company Subsidiary; (vi) any
restrictions with respect to capital stock or assets of a Company
Subsidiary imposed pursuant to a stock or asset sale of such
Company Subsidiary, and (vii) replacements of restrictions
imposed pursuant to clauses (i) through (vi) above that are no
more restrictive than those being replaced.
Limitation on Sale-Leaseback Transactions. The Company
shall not, and shall not permit any Company Subsidiary to,
directly or indirectly enter into, guarantee or otherwise become
liable with respect to any Sale-Leaseback Transaction involving
Collateral or any other Sale-Leaseback Transaction unless: (i)
after giving effect to any such Sale-Leaseback Transaction the
Company could incur $1.00 of additional Indebtedness and its
Consolidated Coverage Ratio would be no less than the ratio
necessary to increase additional Indebtedness; (ii) such
Sale-Leaseback Transaction does not involve the creation of a
lien which is not a Permitted Lien; (iii) the consideration
received by the Company and/or any of its Company Subsidiaries
for such Sale-Leaseback Transaction is at least equal to the Fair
Market Value of such property being transferred, and (iv) the
Company shall apply the Net Cash Proceeds of the sale as if such
sale was a Restricted Asset Sale. See "- Restricted Asset
Sales".
Restricted Asset Sales. The Company shall not, and shall
not permit any Company Subsidiary to, directly or indirectly,
make any Restricted Asset Sale, including the issuance by a
Company Subsidiary of any capital stock or other equity interests
to a Person other than the Company or a wholly owned Company
Subsidiary or any asset sale or other disposition which is not an
Unrestricted Asset Sale, unless: (i) at the time of such
Restricted Asset Sale the Company or such Company Subsidiary, as
the case may be, receives consideration at least equal to the
Fair Market Value of the assets sold or otherwise disposed of;
(ii) with certain exceptions, which include the sale of
Bullwhackers Central City, at least 90% in value of the proceeds
therefrom consist of U.S. dollars; (iii) no Default or Event of
Default shall have occurred and be continuing at the time of or
after giving effect to such Restricted Asset Sale; and (iv)
unless otherwise permitted by the Indenture, the Restricted Asset
Sale does not involve any Collateral.
On or before the 180th day after the date on which the
Company or any Company Subsidiary consummates a Restricted Asset
Sale, the Company shall make an offer to purchase a principal
amount (expressed as a multiple of $1,000) of New Notes equal to
the Net Cash Proceeds received by the Company in respect of the
Restricted Asset Sale at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of purchase; provided that the
Company will not be required to purchase New Notes with the Net
Cash Proceeds of a Restricted Asset Sale if and to the extent
that on or before the 180th day after the date on which the
Company or such Company Subsidiary consummates the Restricted
Asset Sale, the Company or such Company Subsidiary applies all or
part of the Net Cash Proceeds from the Restricted Asset Sale to
acquire other assets for use in the Company's gaming business,
and upon consummation thereof, the Trustee shall have received a
perfected security interest in the property or assets acquired by
the Company or any of its Company Subsidiaries in connection
therewith. Each offer to purchase New Notes after a Restricted
Asset Sale shall remain open for a period of at least twenty (20)
business days.
In the event any Restricted Asset Sale involves any
Collateral, the Company or such Company Subsidiary, as the case
may be, shall cause such Net Cash Proceeds to be deposited in a
Collateral Account maintained by the Trustee. Such funds may be
released from the Collateral Account only to repurchase New Notes
or to acquire assets for use in the Company's gaming business.
Application of Net Cash Proceeds in Event of Loss. In the
event that the Company or any Company Subsidiary suffers any
casualty loss or government taking to any material asset, on or
before the 360th day that the Company or such Company Subsidiary
received any Net Cash Proceeds from such Event of Loss, the
Company shall make an offer to purchase from all Holders up to a
maximum principal amount (expressed as a multiple of $1,000) of
New Notes equal to the Net Cash Proceeds at a purchase price
equal to 101% of the principal amount thereof plus accrued and
unpaid interest thereon, if any, to the date of purchase;
provided that the Company will not be required to purchase New
Notes with such Net Cash Proceeds if and to the extent that on or
before the 360th day after the date on which the Company or such
Company Subsidiary receives such Net Cash Proceeds, the Company
or such Company Subsidiary applies all or part of the Net Cash
Proceeds to acquire other assets for use in the Company's gaming
business and upon consummation thereof, the Trustee shall have
received a perfected security interest (subject only to Permitted
Liens) in the property or assets acquired by the Company or any
of its Company Subsidiaries in connection therewith.
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In the event any casualty loss or government taking involves
any Collateral, the Company or such Company Subsidiary, as the
case may be, shall cause such Net Cash Proceeds to be deposited
in a Collateral Account maintained by the Trustee. Such funds
may be released from the Collateral Account only to repurchase
New Notes or to acquire assets for use in the Company's gaming
business.
Limitation on Company Subsidiary Preferred Stock. The
Company shall not issue or permit any Company Subsidiary to
issue, directly or indirectly, any preferred stock other than
preferred stock issued to and held by the Company or a wholly
owned Company Subsidiary of the Company.
Ownership of Stock of Company Subsidiaries. The Company
shall at all times have, or cause a wholly owned Company
Subsidiary (other than a Non-Operating Subsidiary) of the Company
to have, ownership of at least 100% of each class of Voting Stock
of, and all other equity securities in, each Company Subsidiary
other than a Company Subsidiary which becomes such as a result of
a permitted Investment.
Limitation on Transactions with Affiliates. The Company
shall not, and shall not permit any Company Subsidiary to,
conduct any business or enter into any transaction or series of
transactions with any of their respective Affiliates (defined to
include entities having 15% or more voting control), except such
transactions that are on terms that are no less favorable to the
Company or such Company Subsidiary, as the case may be, than
those that could have been obtained in a comparable transaction
on an arm's-length basis from an unaffiliated third party. All
transactions with Affiliates involving aggregate payments (i) in
excess of $500,000 shall not be permitted unless, prior to the
consummation thereof, the transaction shall be approved by the
Board of Directors of the Company, including a majority of the
independent directors, as evidenced by a Board Resolution, and
(ii) in excess of $2 million shall not be permitted unless, prior
to consummation thereof, the Company shall, in addition to board
approval, receive a favorable opinion as to the fairness of the
transaction from any national or regional investment banking firm
with recognized experience with the gaming industry.
Change in Nature of Business. The Company shall not, and
shall not permit any of its Company Subsidiaries to, own, manage
or conduct any operation other than an operation involved in the
gaming and ancillary businesses.
Maintenance of Consolidated Fixed Charge Coverage Ratio.
The Company shall, at the end of each fiscal quarter beginning
with the fiscal quarter ending March 31, 1998, maintain the ratio
of the difference between its Consolidated EBITDA and its Capital
Expenses to its Consolidated Fixed Charges for the four quarters
then ending at a ratio which is greater than or equal to 1.25 to
1.
Consolidation, Merger, Conveyance, Transfer or Lease.
Except as part of a permitted Restricted Asset Sale, the Company
shall not consolidate with, merge with or into, sell, assign,
convey, lease or transfer all or substantially all of its
properties and assets to any Person or group of affiliated
Persons unless (i) the Company shall be surviving entity or the
surviving entity shall be a corporation organized and existing
under the laws of the United States or any State thereof or the
District of Columbia; (ii) the surviving entity shall expressly
assume all of the obligations of the Company under the New Notes,
the Indenture, and the Security Documents; (iii) no Default or
Event of Default shall have occurred and be continuing; (iv) the
surviving entity shall, immediately after giving effect to such
transaction on a pro forma basis, have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the
Company immediately prior to such transaction; (v) immediately
after giving effect to such transaction on a pro forma basis, the
Company or the surviving entity could incur at least $1.00 of
additional Indebtedness and maintain a Consolidated Coverage
Ratio of no less than the ratio necessary to incur additional
Indebtedness; (vi) the surviving entity shall have delivered to
the Trustee an Officer's Certificate stating that such
consolidation, merger, conveyance, transfer or lease and
supplemental indenture if a supplemental indenture is required in
connection with such transaction or series of transactions
complies with this covenant and that all conditions precedent in
the Indenture relating to the transaction or series of
transactions have been satisfied, and (vii) such transaction will
not result in the loss of any Gaming License or Change in
Control.
Other than the provisions of the Indenture discussed above,
the Indenture may not afford Holders any further protection in
the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving the
Company that may adversely affect the holders of the New Notes,
if such transaction is not a transaction defined as a Change of
Control.
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Events of Default and Remedies
The following are Events of Default under the Indenture:
(a) the default in the payment of any interest on the
New Notes when it becomes due and payable and the
continuance of any such default for a period of ten (10)
days; or
(b) the default in the payment of the principal of or
premium, if any, on the New Notes when due at maturity, upon
acceleration, mandatory redemption, optional redemption,
required purchase or otherwise; or
(c) the failure by the Company to own directed or
through wholly owned Company Subsidiaries subject to the
exceptions described under "Ownership of Stock of Company
Subsidiaries", 100% of the Voting Stock of all Company
Subsidiaries or failure by the Company to maintain the
required Consolidated Fixed Charge Coverage Ratio at the
required level.
(d) default in the performance, or breach of any
covenant or warranty of the Company or any Company
Subsidiary in the Indenture, or by the Company or any
Guarantor under any Security Document, or by any Guarantor
under its Guarantee (other than defaults otherwise specified
in this section), and the continuance of such default or
breach for a period of thirty (30) days after written notice
to the Company by the Trustee or to the Company and the
Trustee by the holders of at least 25% in aggregate
principal amount of the outstanding New Notes; or
(e) failure by the Company or any Company Subsidiary
to make any payment when due or within applicable grace
periods with respect to any other Indebtedness in an
aggregate principal amount of $1 million or more; or
(f) a final judgment for the payment of money in
excess of $1 million shall be entered against the Company,
any Guarantor or any Company Subsidiary and remaining
undischarged for a period of thirty (30) days; or
(g) any warrant of attachment in an amount of $1
million or more shall be issued against any portion of the
property or assets of the Company, any Guarantor or any
Company Subsidiary; or
(h) certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Company
Subsidiaries shall have occurred; or
(i) any Security Document ceases to be in full force
and effect or any Security Documents ceases to create in
favor of the Trustee, with respect to any material amount of
Collateral, a valid and perfected Lien on the Collateral
(subject only to Permitted Liens) purported to be covered
thereby; or
(j) any Guarantee of a Guarantor is determined by a
court of competent jurisdiction to be null and void with
respect to such Guarantor or any Guarantor denies that it
has any further liability under its Guarantee or gives
notice to such effect; or
(k) the cessation of substantially all gaming
operations at any Gaming Facility which has commenced
operations, other than the Bullwhackers Central City casino,
for more than 45 days, except as a result of an Event of
Loss (or 90 days in the case of cessation as a result of
renovations to or construction at or adjacent to such Gaming
Facility); or
(l) the revocation, suspension or involuntary loss of
the legal right to operate any Gaming Facility which
continues for more than 45 days; or
(m) The occurrence of certain restricted mergers or
consolidations; or
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(n) the Company ceases to own 100% of the Voting Stock
of BWBH, Inc., sells the Bullwhackers Black Hawk or any
substantial part of its assets, or certain Events of Loss
occur with respect to Bullwhackers Black Hawk.
The Company is required to deliver to the Trustee on or
before the date which is 45 days after the end of each of the
first three fiscal quarter of the Company's fiscal year and on or
before the date which is 90 days after the end of each fiscal
year of the Company, an officer's certificate stating whether or
not any Default or Event of Default has occurred.
If an Event of Default (other than an Event of Default
specified in clause (g) above) occurs, the Holders of at least
25% in principal amount of the outstanding New Notes may, by
written notice, and the Trustee upon the request of the Holders
of not less than 25% in principal amount of the outstanding New
Notes shall, declare the principal of and accrued interest on all
the New Notes to be immediately due and payable. If an Event of
Default specified in clause (g) occurs, then the principal of and
accrued interest on all the New Notes shall ipso facto become and
be immediately due and payable without any declaration or other
act on the part of the Trustee or any holder.
After a declaration of acceleration, the Holders of a
majority in principal amount of Outstanding New Notes may, by
notice to the Company and the Trustee, rescind such declaration
of acceleration if (a) the Company has deposited with the Trustee
a sum sufficient to pay the unpaid principal of the New Notes,
all overdue interest on the New Notes (including interest on
overdue interest), and the Trustee's reasonable expenses, (b) all
existing Events of Default have been cured or waived, other than
nonpayment of principal of and interest on the New Notes due
solely by such acceleration, and (c) the rescission of
acceleration would not conflict with any judgment or decree.
Notwithstanding the preceding paragraph, in the event of a
declaration of acceleration resulting from failure by the Company
or any Company Subsidiary to make any payment when due with
respect to any other Indebtedness in an aggregate principal
amount of $1 million or more, such declaration of acceleration
shall be automatically annulled if (i) the indebtedness that is
the subject of such Event of Default has been discharged or the
holders thereof have rescinded their declaration of acceleration
in respect of such Indebtedness, (ii) the Company shall have
given notice of such discharge to the Trustee (countersigned by
the holders of such Indebtedness) within 30 days after such
declaration of acceleration in respect of the New Notes, and
(iii) no other Event of Default has occurred during such 30 day
period which has not been cured or waived.
Upon the occurrence of an Event of Default which is
continuing, the Trustee may, or at the direction of the Holders
of at least 25% in principal amount of the outstanding New Notes
shall, initiate suit for collection of the New Notes and the
Guarantees, exercise all rights and remedies in respect of the
Collateral pursuant to the Security Documents or other use
exercise any rights and remedies available to it under the
Indenture or otherwise.
No Holder of any of the New Notes has any right to institute
any proceeding with respect to the Indenture or any remedy
thereunder, unless the Holders of at least 25% in principal
amount of the outstanding New Notes have made written request,
and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee, the Trustee has failed to institute
such proceeding within 15 days after receipt of such notice and
the Trustee has not within such 15-day period received directions
inconsistent with such written request by Holders of a majority
in principal amount of the outstanding New Notes. Such
limitations do not apply, however, to a suit instituted by a
Holder for the enforcement of the payment of the principal of,
premium, if any, or accrued interest on, such Note on or after
the respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee is
required to exercise such rights and powers vested in it under
the Indenture and use the same degree of care and skill in its
exercise thereof as a prudent Person would exercise under the
circumstances in the conduct of such Person's own affairs.
Subject to the provisions of the Indenture relating to the duties
of the Trustee, in case an Event of Default shall occur and be
continuing, the Trustee is not under any obligation to exercise
any of its rights or powers under the Indenture at the request or
direction of any of the holders unless such holders shall have
offered to such Trustee reasonable security or indemnity.
Subject to certain provisions concerning the rights of the
Trustee, the holders of a majority in principal amount of the
outstanding New Notes have the right to
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direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee exercising any trust
or power conferred on the Trustee.
Defeasance
The Company may at any time terminate all of its obligations
with respect to the New Notes and the Indenture ("Legal
Defeasance"), except for certain obligations, including those
regarding any trust established for a defeasance and obligations
to register the transfer or exchange of the New Notes, to replace
mutilated, destroyed, lost or stolen New Notes and to maintain
agencies in respect to the New Notes. The Company may also at
any time terminate its obligations under certain covenants set
forth in the Indenture, including all of those described under "-
Certain Covenants" above, and any omission to comply with such
obligations shall not constitute a Default or an Event of Default
with respect to the New Notes issued under the Indenture
("Covenant Defeasance"). In order to exercise either Legal
Defeasance or Covenant Defeasance, the Company must irrevocably
deposit with the Trustee in trust, for the benefit of the
Holders, money or United States Government Obligations (or a
combination thereof) in such amounts as will be sufficient to pay
the principal of, premium, if any, and interest on the New Notes
to redemption or maturity, together with all other sums payable
by it under the Indenture, and comply with certain other
conditions, including the delivery of an opinion as to certain
tax matters.
Satisfaction and Discharge
Upon the request of the Company, the Indenture will cease to
be of further effect (except as to surviving rights or
registration of transfer or exchange of New Notes) as to all
outstanding New Notes when either: (a) all such New Notes
theretofore authenticated and delivered (except lost, stolen or
destroyed New Notes which have been replaced or paid and New
Notes for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust)
have been delivered to the Trustee for cancellation; or (b)(i)
all such New Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited, prior to the
date of such discharge, with the Trustee funds sufficient to pay
and discharge the entire indebtedness on the New Notes not
theretofore delivered to the Trustee for cancellation, for
principal, premium, if any, and accrued interest to the date of
such deposit; (ii) the Company has paid all sums payable by it
under the Indenture, and (iii) the Company has delivered to the
Trustee an Officer's Certificate and an opinion of counsel
stating that all conditions precedent to satisfaction and
discharge have been complied with.
Amendments and Waivers
The Company may, when authorized by resolutions of its Board
of Directors, and the Trustee may, without the consent of the
Holders, amend, waive or supplement the Indenture, the Security
Documents or the New Notes for certain specified purposes. The
purposes for which amendments may be made without the consent of
the holders include, among other things, curing ambiguities,
defects or inconsistencies, maintaining the qualification of the
Indenture under the Trust Indenture Act, or making any change
that does not adversely affect the rights of any Holder. Other
amendments and modifications of the Indenture, the New Notes or
the Security Documents may be made by the Company and the Trustee
with the consent of the Holders of not less than a majority of
the aggregate principal amount of the Outstanding New Notes,
provided that no such modification or amendment may, without the
consent of the Holder of each Outstanding New Note affected
thereby:
(a) Alter the maturity, principal amount, interest
rate or priority of the New Notes (or the right to institute
suit for any payment after stated maturity),
(b) Release any Guarantor from its Guarantee or amend
the provisions of the Indenture relating to the Guarantee
(other than a release resulting from a permitted sale of all
of the capital stock of a Guarantor),
(c) Except as otherwise provided in the Indenture,
release any Collateral or permit creation of any Lien senior
to or equal to the Lien of any Security Document, or
49
<PAGE>
(d) Reduce the percentage in principal amount of the
Outstanding New Notes the consent of whose Holders is
required for any supplemental indenture, waiver, amendment
or consent to take any action under the Indenture.
No supplemental indenture shall, without the consent of the
Holders of 66 2/3% in principal amount of the Outstanding New
Notes, waive or amend the obligation of the Company to repurchase
the New Notes upon a Change of Control. See "- Mandatory Offers
to Purchase - Offer to Purchase Upon Change of Control".
Regarding the Trustee
IBJ Schroder Bank & Trust Company will serve as Trustee
under the Indenture and will act as collateral agent and the
mortgagee, as applicable, under the Security Documents. Any
replacement trustee must be qualified to act as such under the
United States Trust Indenture Act of 1940, as amended.
Guarantees of 12% Senior Secured Pay-In-Kind Notes due 2003
BWBH, Inc., BWCC, Inc., Millsite 27, Inc. and Silver Hawk
Casino, Inc., have irrevocably and unconditionally guaranteed the
payment of the New Notes and the Company's obligations under the
Indenture. The Guarantees of the Guarantors are in addition to
(and not in substitution for) any other security for the New
Notes and may not be revoked by Guarantor until all guaranteed
obligations have been indefeasibly paid and performed in full.
The liability of each Guarantor under its Guarantee is joint
and several for the full amount of each new Note and is
independent of, and not in consideration of or contingent upon,
the liability of the Company or any other Guarantor. The
obligation of each Guarantor under its Guarantee is continuing,
absolute and unconditional without regard to (i) the legality,
validity or enforceability of the New Notes, the Indenture, any
Security Document, any Lien or Collateral or the Guarantee given
by any other Guarantor; (ii) any defense (other than payment),
set-off or counterclaim that may be available to the Company or
any other Guarantor against any Holder; or (iii) any other
circumstance whatsoever. Each Guarantor waives (i) any and all
rights of subrogation, indemnity or reimbursement (until all
guaranteed obligations have been paid in full); (ii) the right to
require the Holders to proceed against the Company, any other
Guarantor, or any Collateral for the New Notes or other
guaranteed obligations; (iii) all rights under applicable law
which reduce a guarantor's obligations; (iv) the benefit of any
statute of limitations; (v) any requirement of marshalling or any
other principle of election or remedies; (vi) any right to assert
any defense, set-off or counterclaim; (vii) notice of any kind,
except as expressly required by any Security Documents securing
any guaranteed obligations, and (viii) all defenses available to
any Guarantor by virtue of valuation, stay, moratorium or other
law.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL empowers a Delaware corporation to
indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such
corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director,
officer, employee or agent of another corporation or enterprise.
A corporation may indemnify such person against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. A corporation may, in
advance of the final disposition of any civil, criminal,
administrative or investigative action, suit or proceeding, pay
the expenses (including attorneys' fees) incurred by any officer
or director in defending such action, provided that the director
or officer undertakes to repay such amount if it shall be
ultimately determined that he is not entitled to be indemnified
by the corporation.
A Delaware corporation may indemnify officers and directors
in an action by or in the right of the corporation to procure a
judgment in its favor under the same conditions, except that no
indemnification is permitted without judicial approval if the
officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful
50
<PAGE>
on the merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses
(including attorneys' fees) which he actually and reasonably incurred
in connection therewith. The indemnification provided is not deemed
to be exclusive of any other rights to which an officer or
director may be entitled under any corporation's by-law,
agreement, vote or otherwise.
At the Effective Date, the following provisions relating to
indemnification of the post-Effective Date directors and officers
of the Company will be in effect: Article IX of the Company's
Amended and Restated Certificate of Incorporation provides that
the Company shall indemnify its officers, directors, agents and
other persons to the fullest extent permitted by the DGCL.
Article IX of the Company's Amended and Restated Certificate of
Incorporation provides that a director of the Company shall not
be personally liable to the Company or its stockholders for
monetary damages for breaches of fiduciary duty as a director,
except for liability (i) for any breach of the officer's or
director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which
the director derived any improper personal benefit.
Pursuant to the Plan of Reorganization, Messrs. Szapor and
Mayer and certain other pre-Effective Date directors and officers
of the Company are entitled to certain additional indemnification
rights. See "Item 8, Legal Proceedings."
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data appear in
this Form 10 commencing at page F-1.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
51
<PAGE>
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
An Index to Financial Statements appears at Page F-1 hereof.
(b) Exhibits
Exhibit No. Description
___________ ___________
2.1 Disclosure Statement for First Amended Joint Plan
of Reorganization of Hemmeter Enterprises, BWBH,
Inc., BWCC, Inc. and Millsite 27, Inc.**
2.2 First Amended Joint Plan of Reorganization of the
Hemmeter Enterprises, Inc., BWBH, Inc., BWCC, Inc.
and Millsite 27, Inc. (included in exhibit 2.1.)**
3.1 Amended and Restated Articles of Incorporation of
Hemmeter Enterprises, Inc.*
3.2 Amended and Restated By laws of Hemmeter
Enterprises, Inc.*
4.1 Indenture, dated as of March __, 1996, between
Hemmeter Enterprises, Inc. and IBJ Schroder Bank &
Trust Company, as Trustee.*
4.2 Specimen Certificate of Common Stock.*
4.3 Form of Note.*
4.4 Registration Rights Agreement.*
10.1 Loan and Security Agreement, dated as of November
1, 1995 by and between BWBH, Inc., BWCC, Inc. and
Millsite 27, Inc. and Foothill Capital
Corporation.**
10.2 Amendment Number One to Loan and Security
Agreement, dated as of December 4, 1995.**
10.3 Amendment Number Two to Loan and Security
Agreement, dated as of January 24, 1996.**
10.4 Letter Agreement, dated as of December 18, 1995,
from BWBH, Inc., BWCC, Inc. and Millsite 27, Inc.
to Foothill Credit Corporation.**
10.5 Security Agreement, dated as of November 1, 1995,
between Hemmeter Enterprises, Inc., and Foothill
Credit Corporation.**
10.6 Trademark Security Agreement, dated as of November
1, 1995, between Hemmeter Enterprises, Inc. and
Foothill Credit Corporation.**
10.7 Continuing Guaranty, dated as of November 1, 1995
by Hemmeter Enterprises, Inc. and Foothill Credit
Corporation.**
10.8 Post Effect Date Credit Facility Documents.*
10.9 Lease Agreement, dated October 25, 1991 by and
among Jerry L. Brown and Harold Gene Reagin and HP
Black Hawk, L.P.**
52
<PAGE>
10.10 Option to Purchase dated October 28, 1991 by and
among Jerry L. Brown and Harold Gene Reagin and HP
Black Hawk, L.P.**
10.11 Sublease Agreement by and between Marsh &
McLennan, Incorporated and Hemmeter Enterprises,
Inc.**
10.12 Amendment to Sublease Agreement, dated as of
January 18, 1996 by and between Marsh & McLennan,
Incorporated and Hemmeter Enterprises, Inc.**
10.13 Guaranty, dated as of January 18, 1996, by BWBH,
Inc., BWCC, Inc. and Millsite 27, Inc.**
10.14 Agreement for Sale of Real Estate, dated October
20, 1995, by and between Millsite 20 Limited
Liability Company, Iron City Limited Liability
Company and Hemmeter Enterprises, Inc.**
10.15 First Amendment to Agreement for Sale of Real
Estate, dated December 21, 1995 by and between
Millsite 20 Limited Liability Company, Iron City
Limited Liability Company and Hemmeter
Enterprises, Inc.**
10.16 Letter dated February 28, 1996 from the United
States Environmental Protection Agency.**
10.17 Subdivision Agreement dated , 1996 by
and among the City of Black Hawk, the Black
Hawk/Central City Sanitation District, Millsite
27, Inc. and Millsite 20 Limited Liability
Company.*
10.18 State of Colorado, Department of Revenue, Limited
Gaming License issued to Bullwhackers Black Hawk
Casino.**
10.19 State of Colorado, Department of Revenue,
Alcoholic Beverage License issued to BWBH, Inc.**
10.20 City of Black Hawk, Retail Liquor License with
Extended Hours issued to BWBH, Inc.**
10.21 State of Colorado, Department of Revenue, Limited
Gaming License issued to Bullwhackers Central City
Casino.**
10.22 State of Colorado, Department of Revenue,
Alcoholic Beverage License issued to BWCC, Inc.**
10.23 City of Central City, Retail Liquor License issued
to BWCC, Inc.**
10.24 City of Central City, Extended Hours License
issued to BWCC, Inc.**
10.25 Colorado Gaming & Entertainment Co. Management
Stock Incentive Plan.*
10.26 Colorado Gaming & Entertainment Co. Cash Bonus
Plan.*
10.27 Consulting Agreement between Hemmeter Enterprises,
Inc. and Christopher B. Hemmeter.*
10.28 Consulting Agreement between Hemmeter Enterprises,
Inc. and Mark M. Hemmeter.*
10.29 Employment Agreement between Hemmeter Enterprises,
Inc. and Stephen J. Szapor, Jr.*
10.30 Employment Agreement between Hemmeter Enterprises,
Inc. and Alan L. Mayer.*
10.31 Employment Agreement between Hemmeter Enterprises,
Inc. and Richard Rabin.*
21.1 List of Subsidiaries.**
53
<PAGE>
23.1 Consent of Arthur Andersen LLP.
99.1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended of IBJ Schroder Bank &
Trust Company, as Trustee under the Indenture.*
_____________________
* To be filed by amendment.
** Previously filed.
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized.
HEMMETER ENTERPRISES, INC.
(Registrant)
By: /s/
Name: Stephen J. Szapor, Jr.
Title: President & Chief Executive Officer
BWBH, INC.
(Registrant)
By: /s/
Name: Stephen J. Szapor, Jr.
Title: President
BWCC, INC.
(Registrant)
By: /s/
Name: Stephen J. Szapor, Jr.
Title: President
MILLSITE 27, INC.
(Registrant)
By: /s/
Name: Stephen J. Szapor, Jr.
Title: President
SILVER HAWK CASINO, INC.
(Registrant)
By: /s/
Name: Stephen J. Szapor, Jr.
Title: President
May 17, 1996.
55
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
use of our reports (and to all references to our firm) included
in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado
May 17, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,091,428
<SECURITIES> 0
<RECEIVABLES> 237,352
<ALLOWANCES> 0
<INVENTORY> 72,451
<CURRENT-ASSETS> 7,172,589
<PP&E> 45,917,411
<DEPRECIATION> (14,883,565)
<TOTAL-ASSETS> 39,246,539
<CURRENT-LIABILITIES> 5,209,129
<BONDS> 183,619,265
0
0
<COMMON> 118,000
<OTHER-SE> (152,927,455)
<TOTAL-LIABILITY-AND-EQUITY> 39,246,539
<SALES> 720,384
<TOTAL-REVENUES> 11,022,772
<CGS> 734,701
<TOTAL-COSTS> 8,435,351
<OTHER-EXPENSES> 1,095,221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,626
<INCOME-PRETAX> 327,899
<INCOME-TAX> 0
<INCOME-CONTINUING> 327,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 327,899
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
INDEX TO FINANCIAL STATEMENTS
Reference
CONSOLIDATED FINANCIAL STATEMENTS OF HEMMETER
ENTERPRISES, INC.:
Report of Independent Public Accountants F - 2
Consolidated Balance Sheets as of December 31, 1994,
1995 and March 31, 1996, including unaudited
pro forma consolidated balance sheet as of
December 31, 1995 F - 3
Consolidated Statements of Operations for each of
the three years in the period ended December 31, 1995
and the three months ended March 31, 1995 and 1996 F - 4
Consolidated Statements of Stockholders' Equity
(Deficit) for each of the three years in the
period ended December 31, 1995 and the three
months ended March 31, 1996 F - 5
Consolidated Statements of Cash Flows for each
of the three years in the period ended
December 31, 1995 and the three months ended
March 31, 1995 and 1996 F - 6
Notes to Consolidated Financial Statements F - 8
FINANCIAL STATEMENTS OF GRAND PALAIS RIVERBOAT, INC.:
Report of Independent Public Accountants F - 31
Statement of Net Assets in Liquidation as of
December 31, 1995 F - 32
Balance Sheet as of December 31, 1994 F - 33
Statements of Operations for the period from
inception (March 29, 1993) to December 31, 1993,
and for the years ended December 31, 1994 and 1995 F - 34
Statements of Stockholder's Equity for the period
from inception (March 29, 1993) to December 31, 1993,
and for the years ended December 31, 1994 and 1995 F - 35
Statements of Cash Flows for the period from inception
(March 29, 1993) to December 31, 1993, and for the
years ended December 31, 1994 and 1995 F - 36
Notes to Financial Statements F - 37
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hemmeter Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of
Hemmeter Enterprises, Inc. and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated 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 Hemmeter
Enterprises, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As described more fully
in Note 1 to the consolidated financial statements, on November 7,
1995, the Company filed a voluntary petition under Chapter 11 of the
Federal Bankruptcy Code and has since operated its business as a
debtor-in-possession under the supervision the Bankruptcy Court. The
Company's proposed plan of reorganization ("Plan" -- see Note 1) was
confirmed by tof he Bankruptcy Court on March 28, 1996; however, there
are certain events that must occur for the Plan to be declared
effective by the Bankruptcy Court. Because the Company's Plan is not
yet effective, and the Company would be unable to satisfy its default
on its senior secured pay-in-kind notes if the Plan does not become
effective, substantial doubt exists regarding the Company's ability to
continue as a going concern. The accompanying financial statements do
not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Denver, Colorado,
April 11, 1996.
<TABLE>
HEMMETER ENTERPRISES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
December 31, Pro Forma
--------------------------- March 31, December 31,
ASSETS 1994 1995 1996 1995 (1)
------ ------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,977 $ 3,623 $ 6,091 $ 3,623
Accounts receivable, net 1,109 226 237 226
Inventories 85 85 85 73
Prepaid expenses 1,581 638 772 638
Due from affiliates, net 3,625 - - -
--------- --------- --------- ---------
Total current assets 14,377 4,572 7,173 4,572
========= ========= ========= =========
PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, net 69,079 32,127 31,034 32,127
EQUITY INVESTMENT IN UNCONSOLIDATED
SUBSIDIARIES 18,010 - - -
RESTRICTED FUNDS IN ESCROW 18,648 - - -
EXCESS REORGANIZATION VALUE (Note 1) - - - 26,320
OTHER ASSETS, net 20,979 981 1,040 981
--------- --------- --------- ---------
$ 141,093 $ 37,680 $ 39,247 $ 64,000
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 3,118 $ 404 $ 387 $ 404
Accrued expenses 3,727 3,953 5,209 3,953
Current portion of credit facility - - - 952
Current portion of notes payable 14,610 - - -
Current portion of obligations under
capital leases 787 - - -
--------- --------- --------- ---------
Total current liabilities 22,242 4,357 5,596 5,309
--------- --------- --------- ---------
NOTES PAYABLE, net of current portion:
Senior secured notes payable 154,213 - - 50,000
Obligations under capital leases 1,462 - - -
Credit facility - - - 2,248
Other notes - - - 2,100
--------- --------- --------- ---------
155,675 - - 4,348
--------- --------- --------- ---------
LIABILITIES SUBJECT TO COMPROMISE
(Note 1) - 186,460 186,460 -
--------- --------- --------- ---------
Total liabilities 177,917 190,817 192,056 59,657
--------- --------- --------- ---------
COMMITMENTS AND CONTINGENCIES
(See Notes)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value,
2,000,000 shares authorized,
none issued - - - -
Common stock, $.01 par value,
50,000,000 shares authorized,
9,847,787, 11,786,235, and
11,786,235 shares issued and
outstanding at December 31, 1994,
1995, and March 31, 1996
respectively 99 118 118
Warrants issued 8,266 7,000 7,000 -
Common stock, $.01 par value,
20,000,000 shares authorized,
5,138,888 shares issued and
outstanding on a pro forma
basis at December 31, 1995 - - - 51
Additional paid-in capital 2,012 2,162 2,162 4,292
Accumulated deficit (47,201) (162,417) (162,089) -
--------- --------- --------- ---------
Total stockholders' equity
(deficit) (36,824) (153,137) (152,809) 4,343
--------- --------- --------- ---------
$ 141,093 $ 37,680 $ 39,247 $ 64,000
========= ========= ========= =========
(1) Unaudited Pro Forma amounts giving effect to the Plan of Reorganization and Fresh Start
Reporting -- see Note 1 of the Notes to Consolidated Financial Statements.
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
<TABLE>
HEMMETER ENTERPRISES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<CAPTION>
Three Months
Ended
Years Ended December 31, March 31
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Casino $ 35,982 $ 42,724 $ 44,854 $ 11,186 $ 10,549
Food and beverage 2,935 3,571 3,737 888 720
Other 259 389 286 66 19
---------- ---------- ---------- ---------- ----------
Gross revenues 39,176 46,684 48,877 12,140 11,288
Less: promotional allowances (708) (1,210) (1,449) (323) (266)
---------- ---------- ---------- ---------- ----------
Net revenues 38,468 45,474 47,428 11,817 11,022
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Casino 12,705 14,006 13,087 3,270 3,168
Gaming taxes and device fees 7,703 8,178 8,277 222 2,002
Food and beverage 3,270 3,140 3,173 770 735
General and administrative:
Casino 4,325 4,325 3,281 3,223 812
Corporate - 8,108 6,470 2,614 645
Marketing 3,376 3,776 5,806 1,309 1,159
Depreciation and amortization 3,931 4,307 4,771 1,133 1,095
Pre-opening - - 2,594 - -
Reorganization items (Note 1) - - 17,910 - 1,068
Impairment of assets (Notes 5 and 11) - 6,875 10,945 1,160 -
Predevelopment costs - 3,929 402 305 -
Other - 241 - - -
---------- ---------- ---------- ---------- ----------
Total operating expenses 35,310 58,435 74,064 13,594 10,598
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 3,158 (12,961) (26,636) (1,777) 424
Interest expense (includes $4,755 and
$122 to affiliates in 1993 and 1995,
respectively) (contractual interest of
$3,179 and $5,391 was not recognized
for December 31, 1995 and March 31,
1996, respectively (note 7)) (6,987) (18,822) (18,664) (4,459) (120)
Interest income - - 1,976 361 213
Equity in loss of unconsolidated
subsidiaries (Notes 1 and 6) - (2,324) (70,277) (4,377) -
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (3,829) (32,131) (115,216) (10,400) 328
Provision for income taxes - - - - -
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (3,829) $ (32,131) $ (115,216) $ (10,400) $ 328
========== ========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE $ (0.37) $ (3.22) $ (9.78) $ (.88) $ .03
========== ========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 10,269,641 9,969,142 11,786,235 11,786,235 11,786,235
========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<TABLE>
HEMMETER ENTERPRISES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND THE THREE MONTHS ENDED MARCH 31, 1996
(in thousands, except number of shares)
<CAPTION>
Common Stock Additional
------------------------- Warrants Paid-in Accumulated
Shares Amount Issued Capital Deficit Totals
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCES, December 31, 1992 $ - $ - $ - $ 1,239 $ (11,241) $ (10,002)
Capital contributions to predecessor companies - - - 871 - 871
Issuance of common stock pursuant to
restructuring 10,269,641 103 - (102) - 1
Issuances of warrants to purchase common stock - - 8,266 - - 8,266
Net loss - - - - (3,829) (3,829)
---------- ---------- ---------- ---------- ---------- ----------
BALANCES, December 31, 1993 10,269,641 103 8,266 2,008 (15,070) (4,693)
Conversion of common stock to warrants (421,854) (4) - 4 - -
Net loss - - - - (32,131) (32,131)
---------- ---------- ---------- ---------- ---------- ----------
BALANCES, December 31, 1994 9,847,787 99 8,266 2,012 (47,201) (36,824)
Vesting of common stock grants to officers
and directors 88,667 1 - 168 - 169
Warrants of deconsolidated subsidiary - - (1,266) - - (1,266)
Conversion of warrants to common stock 1,849,781 18 - (18) - -
Net loss - - - - (115,216) (115,216)
---------- ---------- ---------- ---------- ---------- ----------
BALANCES, December 31, 1995 11,786,235 118 7,000 2,162 (162,417) (153,137)
Net income (unaudited) - - - - 328 328
---------- ---------- ---------- ---------- ---------- ----------
BALANCES, March 31, 1996 (unaudited) 11,786,235 $ 118 $ 7,000 $ 2,162 $ (162,089) $ (152,809)
========== ========== ========== ========== ========== ----------
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<TABLE> Page 1 of 2
HEMMETER ENTERPRISES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION> Three Months
Ended
Years Ended December 31, March 31
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (3,829) $ (32,131) $ (115,216) $ (10,400) $ 328
---------- ---------- ---------- ---------- ----------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities-
Depreciation and amortization 3,931 4,307 4,771 1,133 1,095
Loss on retirements of property
and equipment 92 - 127 - 294
Equity in loss of unconsolidated
subsidiaries - 2,324 70,277 4,377 -
Noncash compensation - - 169 128 -
Predevelopment costs - 3,929 - - -
Impairment of assets - 6,875 11,347 1,000 -
Noncash interest expense 692 17,909 17,895 5,339 120
Noncash reorganization items - - 15,317 - 1,068
(Increase) decrease in accounts
receivable (252) (808) 883 488 (11)
(Increase) decrease in inventories 115 15 - (12) 12
Increase in prepaid expenses and
other assets (16) (1,270) (172) (210) (134)
(Decrease) increase in accounts
payable (297) 1,398 378 (224) (20)
(Decrease) increase in accrued
expenses 17 167 226 (484) 188
---------- ---------- ---------- ---------- ----------
Total adjustments 4,282 34,845 121,218 11,535 2,612
---------- ---------- ---------- ---------- ----------
Net cash provided by operating
activities 453 2,714 6,002 1,135 2,940
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, equipment
and leasehold improvements (9,812) (31,560) (1,508) (1,241) (407)
Investment in development projects (571) (3,358) - - -
Net restricted funds (placed in)
disbursed from escrow (71,200) 52,552 4,209 1,679 -
Investment in unconsolidated
subsidiaries - (20,334) (9,270) (1,416) -
Advances to PRIGSA (Note 5) - (5,875) (289) - -
(Increase) decrease in other assets (7,830) (5,174) 59 (131) 24
Advances to affiliates, net (365) (4,402) (1,257) (1,594) -
---------- ---------- ---------- ---------- ----------
Net cash used in investing
activities (89,778) (18,151) (8,056) (2,703) (383)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to affiliate 6,285 - 2,000 - -
Repayment of notes payable to affiliate (31,851) - - - -
Proceeds from notes payable and
obligations under capital leases 135,255 13,048 - - -
Payment of debt placement costs,
net of accrued liabilities (7,667) (38) (315) - (89)
Repayments of notes payable and
obligations under capital leases
(10,565) (2,540) (1,651) (749) -
Capital contributions received by
predecessor companies 871 - - - -
Issuance of warrants to purchase
common stock 8,266 - - - -
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities 100,594 10,470 34 (749) (89)
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 11,269 (4,967) (2,020) (2,317) 2,468
CASH AND CASH EQUIVALENTS, at beginning
of period (less $2,334 of cash in
subsidiary deconsolidated for the
1995 period) 1,675 12,944 5,643 5,643 3,623
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS,
at end of period $ 12,944 $ 7,977 $ 3,623 $ 3,326 $ 6,091
========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest, net of
amounts capitalized $ 6,647 $ 965 $ 579 $ 175 $ 2
========== ========== ========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of notes payable and capital
lease obligations for purchases of
property and equipment $ 408 $ 726 $ 227 $ - $ -
========== ========== ========== ========== ==========
Issuance of notes payable for accrued
interest obligations $ - $ 17,001 $ 9,416 $ - $ -
========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
HEMMETER ENTERPRISES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND
(Information as of March 31, 1996 and for the three months ended
March 31, 1995 and 1996 is unaudited)
(1) ORGANIZATION, PLAN OF REORGANIZATION
AND GOING-CONCERN CONSIDERATIONS
Organization
Hemmeter Enterprises, Inc. ("HEI"), and its subsidiaries (the
"Company"), develop, own and operate gaming and related entertainment
facilities. HEI was incorporated in August 1993 to acquire and serve
as the parent company of certain companies now comprising HEI's wholly
owned subsidiaries pursuant to a restructuring of certain entities
under common control which was consummated on December 17, 1993. The
accompanying financial statements have been prepared to give effect to
the 1993 restructuring.
Two wholly owned subsidiaries, BWBH, Inc. and BWCC, Inc., own and
operate limited stakes gaming facilities in Colorado (collectively,
"Bullwhackers Casinos"). Millsite 27, Inc., also a wholly owned
subsidiary, owns a surface parking facility constructed in 1994 for
the benefit of BWBH, Inc.'s casino. The Bullwhackers Casinos
commenced operations in 1992. Another wholly owned subsidiary, Grand
Palais Riverboat, Inc. ("GPRI"), is a fifty percent joint venture
partner in River City Joint Venture ("RCJV") with Crescent City
Capital Development Corp. ("CCCD"), an affiliate of Capital Gaming
International, Inc., which developed and operated a riverboat gaming
project in New Orleans, Louisiana (the "Riverboat Project") (Note 6).
GPRI and CCCD each operated separate riverboat gaming operations which
commenced on March 29, 1995 and April 3, 1995, respectively. RCJV
operated an entertainment and docking facility for the two riverboats,
with parking, dining, entertainment facilities and other amenities.
GPRI Bankruptcy
The Riverboat Project incurred construction cost overruns and had
substantial operating losses as a result of the failure of the New
Orleans gaming market to develop as anticipated and the resulting
failure of the Riverboat Project to achieve projected revenues. As a
result, GPRI and CCCD terminated riverboat gaming operations on June
6, 1995 and June 9, 1995, respectively. On July 26, 1995, certain
creditors filed an involuntary petition under Chapter 11 of the
Federal Bankruptcy Code against GPRI, CCCD and RCJV. On July 27,
1995, GPRI converted its petition to a voluntary petition under
Chapter 11 of the Federal Bankruptcy Code in the United States
Bankruptcy Court for the Eastern District of Louisiana (the "Court").
Since that time, GPRI has continued to operate as a debtor-in-
possession, although the business of GPRI has not operated since June
6, 1995.
Following termination of operations, HEI management began assessing
the possibility that all or part of the Riverboat Project could be
sold to another gaming operator. After evaluation and negotiation of
potential transactions, HEI, certain creditors and GPRI entered into a
letter of intent with Casino America, Inc. ("Casino America
Agreement"). Generally, the Casino America Agreement provides for the
purchase by Casino America, Inc. of 100% of the newly issued shares of
common stock of a Reorganized GPRI in exchange for consideration from
Casino America, Inc. valued at approximately $59 million, including
cash, stock, notes and the assumption of certain GPRI liabilities. On
January 30, 1996, GPRI filed its proposed plan of reorganization
("GPRI Plan") pursuant to which it seeks to implement the terms of the
Casino America Agreement. The GPRI Plan was confirmed by the Court on
March 29, 1996. The GPRI Plan will be consummated on the date on
which the conditions to the effectiveness of the GPRI Plan have been
satisfied or waived (note 13). Under the GPRI Plan, the Company will
receive GPRI's causes of action, if any, against GPRI's joint venture
partner in the Riverboat Project and will receive no other
distribution in respect of its stock ownership in GPRI or any claim
that it may have in the GPRI bankruptcy case.
HEI Bankruptcy
In June 1995, HEI received "Notices of Default" from the trustee of
its Senior Secured Pay-In-Kind Notes (the "Old Notes") (See Note 7),
alleging that HEI was in default under various provisions of the Old
Notes Indenture. The alleged defaults included, among other matters,
violations related to the issuance of certain additional indebtedness,
the termination of riverboat gaming operations, the numerous liens
filed against the Riverboat Project and the failure to file audited
financial statements on a timely basis. HEI negotiated with a
committee comprised of certain holders of the Old Notes to restructure
the Old Notes. On November 7, 1995, HEI and three of its wholly owned
subsidiaries (BWBH, Inc. BWCC, Inc. and Millsite 27, Inc.)
(collectively, the "Debtor"), filed voluntary petitions for
reorganization under Chapter 11 of the Federal Bankruptcy Code in the
District of Delaware as contemplated by the negotiations with the
holders of the Old Notes. The Chapter 11 case subsequently was
transferred to the Court.
The Court allowed the Debtor to continue business operations as a
debtor-in-possession. The Debtor's primary operations now consist of
the Bullwhackers Casinos. The Debtor received approval from the Court
to pay or otherwise honor certain of its pre-petition obligations
related to the Bullwhackers Casinos, including employee wages and
benefits, utilities, and claims of certain trade vendors.
Accordingly, these amounts have been paid or are included in the
appropriate liability captions in the accompanying December 31, 1995
consolidated balance sheet. In addition, the Court approved the
Debtor's entering into a $7.9 million debtor-in-possession financing
facility (see Note 7).
HEI Proposed Plan of Reorganization
On February 12, 1996, the Debtor filed its Chapter 11 First Amended
Plan of Reorganization and Disclosure Statement (as amended, the
"Plan") with the Court. The Court granted motions filed by the Debtor
approving an amended Disclosure Statement describing the Plan and
establishing procedures for notification of creditors and stockholders
and for solicitation of formal acceptances of the Plan by creditors.
The Plan was confirmed by the Court on March 28, 1996.
The Plan will be consummated on the date (the "Effective Date") on
which certain conditions specified in the Plan are satisfied or
waived. The Company expects that the Effective Date will occur on or
about June 1, 1996.
The following events will occur at the Effective Date pursuant to the
Plan:
1. The Debtor will be discharged from any liability to GPRI or its
creditors. Assuming that the GPRI Plan becomes effective, the
Company will no longer have any interest in GPRI or the
Riverboat Project and its principal assets will consist of the
stock of its subsidiaries which own the Bullwhackers Casinos
and a surface parking lot. If the GPRI Plan is not effective
prior to the Effective Date, the Company will continue to own
the capital stock of GPRI until the GPRI Plan becomes
effective; however, Company management does not believe that
the GPRI stock has any value.
2. The claims of entities which provide goods and services to the
Bullwhackers Casinos will be paid in full or will otherwise be
treated in such a manner so that they are not impaired and all
other unsecured creditors of the Bullwhackers Casinos will
receive notes in a principal amount equal to the allowed amount
of their claims which provide for a single payment of principal
and accrued interest on the tenth anniversary of the issuance
thereof. All other unsecured creditors of the Company will
receive no distribution in respect of their claims against the
Company.
3. The holders of the Old Notes and the holder of the secured
claim of Resort Income Investors, Inc. (the "RII Claim"; Resort
Income Investors, Inc. is sometimes referred to as "RII") will
receive $50,000,000 in principal amount of 12% Senior Secured
Pay-In-Kind Notes of the Company, due 2003 (Note 7), and one
hundred percent (100%) of the issued and outstanding capital
stock of the "Reorganized Company," subject to being diluted to
90% by certain stock grants to be provided to senior management
employees and non-employee directors of the Reorganized Company
(Note 8). As a result, the holders of the Old Notes and the
RII Claim will be the principal creditors and stockholders of
the Company. The portion of the new Senior Secured Pay-In-Kind
Notes paid to the holder of the RII claim will be less than
$1 million and a similar portion of common stock will be issued
to the holder of the RII claim.
4. Pursuant to the settlement of certain lawsuits against the
Company and certain of its executive officers, the Company will
issue two promissory notes to Capital Associates International,
Inc. ("CAI"), an equipment lessor which had leased equipment to
the Company and GPRI, in the respective principal amounts of
$1.6 million and $3 million (the "CAI Notes"). The Company's
obligation in respect of the CAI Notes will be reduced dollar-
for-dollar by any amounts received by CAI in respect of its
claims filed in the GPRI bankruptcy case (Note 10).
5. Certain claims of the Debtor against third parties, including
derivative claims against the pre-Effective Date directors,
officers, and employees of the Debtor, will be transferred to a
litigation trust (the "Litigation Trust"). The trustees of the
Litigation Trust will be the post-Effective Date directors of
the Company and will determine whether or not to pursue any
such claims. Any amounts received in respect of any such
claims will inure to the benefit of the holders of the Old
Notes and the RII Claim (Note 12).
6. Any amounts outstanding under the DIP Facility (Note 7) will be
paid in full and the DIP Facility will be terminated. The
Company anticipates replacing the DIP Facility with a new
$12.5 million credit facility on the Effective Date.
7. The Company will change its name to Colorado Gaming &
Entertainment Co.
Liabilities Subject to Compromise
Pursuant to the Chapter 11 proceedings, certain secured and unsecured
claims against the Debtor in existence prior to the filing of the
petitions for relief under the Federal Bankruptcy Code were stayed
while the Debtor continued business operations as a debtor-in-
possession. The stayed claims which are "impaired" under the Plan are
reflected in the accompanying December 31, 1995 and March 31, 1996,
consolidated balance sheets as "liabilities subject to compromise."
As of the petition date, the Debtor also discontinued accruing
interest on its pre-petition debt obligations. Additional claims have
arisen subsequent to the petition date resulting from the rejection of
executory contracts and/or leases and from the allowance by the Court
of contingent and/or disputed claims. Creditors and other parties in
interest have filed claims with the Court which are substantially in
excess of the amounts recorded in the Debtor's records. Management
believes these differences are primarily related to errors,
duplicative claims and overstatement of claims. The exact amount of
these liabilities is subject to adjustment as disputed claim amounts
are resolved by the Court, which management believes will not have a
material adverse effect on the Company's financial position, results
of operations or cash flows.
Liabilities subject to compromise consist of the following (in
thousands):
December 31 March 31,
1995, 1996
----------- -----------
(unaudited)
Senior Secured Pay-In-Kind Notes $174,274 $174,274
Resort Income Investors 2,122 2,122
Equipment financing 4,169 4,169
HEI guarantee of subsidiary debt 4,600 4,600
HEI trade payables 1,295 1,295
-------- --------
Total $186,460 $186,460
======== ========
The accompanying consolidated financial statements have been prepared
on a going-concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary
course of business. However, as a result of the Chapter 11 filing and
circumstances relating to this event, including the Debtor's highly
leveraged financial structure, there is substantial doubt about the
continuity of the Company's operations and the realization of the
Company's assets and liquidation of its liabilities. While under the
protection of Chapter 11, the Debtor may, with the approval of the
Court, sell or otherwise dispose of assets and liquidate or settle
liabilities for amounts other than those reflected in the consolidated
financial statements. Further, the proposed Plan will materially
change the amounts reported in the consolidated financial statements,
which do not give effect to any adjustments to the carrying value of
the assets or amounts of liabilities that might be necessary as a
consequence of the proposed Plan. The appropriateness of using the
going-concern basis is dependent upon both the Plan and the GPRI Plan
becoming effective, generation of sufficient cash from operations and
financing sources to meet obligations and achievement of satisfactory
levels of future operating profit. The accompanying financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary if
the Company is unable to continue as a going concern.
Fresh Start Reporting
Upon confirmation of the Plan, the Company's post-petition liabilities
and allowed claims exceeded the reorganization value of the
Reorganized Company. Additionally, the Plan provides that the
existing stockholders of the Company will receive no ownership
interest in the Reorganized Company. Because these two conditions
exist, the Company is subject to and as of the effective date of the
Plan, the Reorganized Company will adopt Fresh Start Reporting in
accordance with the American Institute of Certified Public Accountants
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7"). Fresh start
reporting will result in material changes to the consolidated balance
sheet, including revaluation of assets and liabilities to fair market
value and revaluation of equity based on the reorganization value of
the ongoing business.
The unaudited $64 million reorganization value was estimated based
upon a Discounted Cash Flow Analysis. Under the Discounted Cash Flow
Analysis, the value of the company was calculated utilizing five year
projected cash flows plus an estimated terminal value at the end of
year five. The terminal value was calculated at 6 times year five
cash flows. The cash flows and terminal values were then discounted
to present values by applying a discount rate of approximately 17%.
The company's cash flow forecasts reflect numerous assumptions,
including modest increases in revenues and profitability resulting
primarily from enhanced marketing efforts, selective capital
expenditures, implementation of additional cost efficiencies and
overall growth in the Black Hawk market. The increases have been
assumed to be offset somewhat by an increased level of competition in
the Black Hawk market. The forecasts do not take into account the
company's proposed expansion plans including the acquisition and
opening of the Silver Hawk Casino or the construction of the proposed
parking structure in Black Hawk. Upon adopting fresh start reporting,
the reorganization value will be allocated to the assets and
liabilities of the Reorganized Company, including subsidiaries. Any
excess of the reorganization value over the fair market value of the
net assets and liabilities will be reported as excess reorganization
value and will be amortized over a 20-year period or less.
As a result of adopting fresh start reporting, the Reorganized
Company's consolidated financial statements will not be comparable
with those prepared before the effective date, including the
historical consolidated financial statements included herein. The
unaudited pro forma consolidated balance sheet as of December 31,
1995, presented alongside the accompanying consolidated balance
sheets, has been prepared by Company management based on an assumption
that fresh start reporting was adopted as of December 31, 1995,
although appraisals necessary to allocate the reorganization value to
specific assets, including the Bullwhackers Casinos and surface
parking facility, are not yet available. Once appraisals are
obtained, management anticipates that a substantial amount of the
unaudited excess reorganization value will be allocated to property,
equipment and leasehold improvements. Final allocation of this excess
amount is subject to receipt of an independent appraisal expected to
be completed by June 1996. Management believes a significant portion
of the excess amount will be allocated to property and equipment. The
Company anticipates that it may establish a deferred tax liability if
the revalued property and equipment for financial reporting purposes
is significantly in excess of the historical tax basis. The expected
amount of property and equipment basis differences from tax basis is
not reasonably estimatable.
The following reflects the adjustments between the historical and
unaudited pro forma consolidated balance sheet of the Company at
December 31, 1995.
<TABLE>
<CAPTION>
(unaudited)
----------------------------------------------
Historical Pro Forma
December 31, Reorganization Fresh Start December 31,
1995 Adjustments Adjustments 1995
-------------- -------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,623 $ - $ - $ 3,623
Accounts receivable, net 226 - - 226
Inventories 85 - - 85
Prepaid expenses 638 - - 638
---------- ---------- ---------- ----------
Total current assets 4,572 - - 4,572
PROPERTY, EQUIPMENT AND
LEASEHOLD IMPROVEMENTS, net 32,127 - - 32,127
EXCESS REORGANIZATION VALUE - - 26,320 26,320
OTHER ASSETS, net 981 - - 981
---------- ---------- ---------- ----------
$ 37,680 $ - $ 26,320 $ 64,000
========== ========== ========== ==========
CURRENT LIABILITIES:
Accounts payable $ 404 $ - $ - $ 404
Accrued expenses 3,953 - - 3,953
Current portion of credit facility - 952 - 952
---------- ---------- ---------- ----------
Total current liabilities 4,357 952 - 5,309
---------- ---------- ---------- ----------
NOTES PAYABLE, net of current portion:
Senior secured notes payable - 50,000 - 50,000
Credit facility - 2,248 - 2,248
Other notes - 2,100 - 2,100
---------- ---------- ---------- ----------
- 54,348 - 54,348
---------- ---------- ---------- ----------
LIABILITIES SUBJECT TO COMPROMISE $ 186,460 $ (186,460) $ - $ -
---------- ---------- ---------- ----------
Total liabilities 190,817 (131,160) - 60,057
---------- ---------- ---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock 118 (67) - 51
Warrants issued 7,000 (7,000) - -
Additional paid-in capital 2,162 - 2,130 4,292
Accumulated deficit (162,417) 138,227 24,190 -
---------- ---------- ---------- ----------
Total stockholders' equity (deficit) (153,137) 131,160 26,320 4,343
---------- ---------- ---------- ----------
$ 37,680 $ - $ 26,320 $ 64,000
========== ========== ========== ==========
</TABLE>
Below is a summary of reorganization adjustments and fresh start
reporting adjustments included in the unaudited pro forma consolidated
balance sheet at December 31, 1995.
Reorganization Adjustments:
- Eliminate liabilities subject to compromise. Establish new
secured and unsecured debt and classification between
current and long-term, as appropriate. Recognize gain on
settlement of liabilities subject to compromise, represented
by credit to accumulated deficit.
- Eliminate old HEI (1) preferred stock, (2) common stock,
(3) warrants and (4) additional paid-in capital.
- Record new (1) common stock (5,138,888 shares @ $.01 =
$51,389) and (2) residual amount of additional paid-in
capital of the Reorganized Company based on its estimated
reorganization value.
Fresh Start Reporting Adjustments:
- Record reorganization value in excess of amounts allocable
to identifiable assets and liabilities.
- Record reorganization value of the assets in excess of
liabilities as additional paid-in-capital.
- Eliminate accumulated deficit balance to reflect fresh-start
accounting.
(2) SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the
accounts of HEI and its wholly owned subsidiaries. Intercompany
balances and transactions have been eliminated.
As of December 31, 1994, the accounts of GPRI are consolidated with
those of HEI and its other majority owned subsidiaries. Because of
the pending GPRI Chapter 11 bankruptcy proceedings and Casino America
Agreement, it has been determined that HEI does not "control" GPRI
and, therefore, GPRI no longer meets the consolidation criteria
pursuant to Statement of Financial Standards No. 94, "Consolidation of
All Majority-Owned Subsidiaries." Accordingly, effective January 1,
1995, HEI's investment in GPRI is being accounted for under the equity
method. Under the equity method, original investments and advances
are recorded at cost and adjusted by the Company's share of
undistributed losses of the investee.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents includes cash in banks, currency located in
the casinos' vaults, coins located in the gaming device hoppers and
other cash used in daily operations. Included in cash and cash
equivalents at December 31, 1994 and 1995, and March 31, 1996 is
restricted cash totaling $618,000, $595,000 and $595,000,
respectively, which represents the portion of cash on hand that is
required to be maintained by the Bullwhackers Casinos based on
regulations promulgated by the Colorado Limited Gaming Control
Commission (the "Colorado Gaming Commission").
The Company considers all highly-liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The
carrying amount of cash equivalents approximates fair value because of
the short-term maturity of those investments.
Inventories
Inventories consist of food and beverage, retail and casino supplies.
Inventories are stated at the lower of cost (first-in, first-out
basis) or market.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost.
Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the assets. Costs of major
improvements are capitalized; costs of normal repairs and maintenance
are charged to expense as incurred.
Other Assets
Other assets consisted of the following (in thousands):
December 31,
------------------------ March 31,
1994 1995 1996
----------- ----------- -----------
(unaudited)
Debt placement costs for
$140 million 11 1/2% Senior
Secured Pay-In-Kind Notes
(net of $1,441,000 of
accumulated amortization
in 1994) $ 7,377 $ - $ -
Dock Board deposit 7,551 - -
Licensing costs 3,271 - -
Other, net 2,780 981 1,040
------- ------- -------
$ 20,979 $ 981 $ 1,040
======= ======= =======
Debt placement costs incurred to obtain the Old Notes were being
amortized over the seven-year term of the Old Notes using the
effective interest rate method. In 1995, all unamortized debt
placement cost were charged-off as reorganization items in accordance
with the provisions of SOP 90-7. The Dock Board deposit represents a
deposit paid by GPRI to the Board of Commissioners of the Port of New
Orleans related to the Riverboat Project. Costs incurred in relation
to formation of GPRI and licensing fees for its initial gaming license
have been capitalized and were being amortized over the five-year term
of the initial Louisiana gaming license beginning in March 1995.
Effective January 1, 1995, as a result of the deconsolidation of GPRI,
the Dock Board deposit and licensing costs were included in the
separate financial statements of GPRI. Accumulated amortization of
other assets as of December 31, 1994 and 1995, and March 31, 1996,
totaled $175,200, $239,400 and $255,400, respectively.
Accrued Expenses
Accrued expenses consisted of the following (in thousands):
December 31,
------------------------ March 31,
1994 1995 1996
----------- ----------- -----------
(unaudited)
Gaming taxes payable $ 541 $ 537 $ 542
Accrued payroll
and related expenses 1,310 1,048 792
Accrued offering costs 200 - -
Accrued gaming liabilities 659 437 655
Reorganization items - 1,202 2,064
Other accruals 1,017 729 1,156
------- ------- -------
$ 3,727 $ 3,953 $ 5,209
======= ======= =======
Casino Revenues and Promotional Allowances
In accordance with industry practice, the Company recognizes as casino
revenues the net win from gaming activities, which is the difference
between gaming wins and losses. The retail value of food and beverage
furnished to customers on a complimentary basis is included in gross
revenues and then deducted as promotional allowances. The estimated
cost of providing such promotional allowances is included in casino
operating expenses in the accompanying consolidated statements of
operations and totaled approximately $251,000, $429,000 and $615,000,
for the years ended December 31, 1993, 1994 and 1995, respectively,
and $323,000 and 265,000 for three months ended March 31, 1995 and
1996, respectively.
Predevelopment Expense
Historically, costs incurred during investigation of potential
development projects were capitalized and charged to expense at such
time as management concluded that a development project was no longer
viable. As of December 31, 1994 all costs related to development
projects were expensed as management had determined each of the
related projects were no longer viable development opportunities.
Beginning in 1995, costs related to investigation of new venue
development projects were expensed as incurred.
Pre-opening Expenses
The Company expenses pre-opening costs as incurred. Pre-opening costs
consist of expenditures incurred prior to the opening of the casinos
to prepare the casinos for business and include labor costs, certain
consulting, marketing and other direct costs. Because GPRI was
consolidated in 1994, pre-opening costs of $2.6 million incurred in
1994 in connection with GPRI's riverboat are reflected in the
accompanying 1994 consolidated statement of operations.
Reorganization Items
Reorganization items consist of income, expenses and other costs
directly related to the Chapter 11 reorganization of the Debtor.
Reorganization items consisted of the following (in thousands):
December 31 March 31,
1995, 1996
----------- -----------
(unaudited)
Charge-off of debt discount
and placement costs $ 10,717 $ -
Guarantee of subsidiary debt 4,600 -
Professional fees 2,593 1,068
------- ------
$ 17,910 $ 1,068
======= ======
Net Loss Per Common Share
Net loss per common share and common equivalent share are computed by
dividing net loss by the weighted average number of shares of common
stock and common stock equivalents outstanding during the year. For
all periods presented in the accompanying consolidated statements of
operations, outstanding warrants, options and restricted stock have
been excluded from the calculation of weighted average common and
common equivalent shares outstanding as their impact in net loss per
share would have been antidilutive.
New Authoritative Pronouncements
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," will be adopted by the Company in 1996. The adoption of
this Statement is not expected to have a material impact upon the
Company's results of operations or financial position.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current year presentation.
Interim Financial Statements
The financial statements as of March 31, 1996, and for the three month
periods ended March 31, 1995 and 1996, are unaudited. In management's
opinion, the unaudited financial statements as of March 31, 1996, and
for the three month periods ended March 31, 1996 and 1995, include all
adjustments necessary for a fair presentation. Such adjustments were
of a normal recurring nature.
(3) RESTRICTED FUNDS IN ESCROW
In connection with the issuance of the $140 million aggregate
principal amount of Old Notes (Note 7), the Company was required to
escrow a portion of the net proceeds to be used to fund a portion of
the Company's expected share of the total cost to develop the
Riverboat Project (Note 6). The Company also escrowed additional net
proceeds used for construction of a surface parking facility (Note
12). Transactions in the escrow account were managed by an
independent trustee and disbursement agent who administered requests
for disbursements pursuant to a Disbursement Agreement, which was a
condition to the issuance of the Old Notes. Total deposits to the
escrow account were $81.7 million in 1993 of which $10.5 million and
$64.8 million had been disbursed as of December 31, 1993 and 1994,
respectively, including $9 million used to repay loans from an
affiliate in 1993 (Note 11) and $15 million which was released to the
Company in 1994 for general working capital upon the occurrence of
certain events as allowed by the Old Notes Indenture. Approximately
$2.5 million of the funds disbursed in 1994 were used for construction
of the surface parking facility. The remaining funds were disbursed
in 1995 for development of the Riverboat Project, including funds for
construction of the riverboat, and the acquisition of property for the
entertainment and dock facility. Funds held in this account served as
collateral for the Old Notes.
(4) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Property, equipment and leasehold improvements consisted of the
following (in thousands):
December 31,
------------------------ March 31,
1994 1995 1996
----------- ----------- -----------
(unaudited)
Land and improvements $ 14,105 $ 14,330 $ 14,116
Building and improvements 5,722 5,764 5,790
Leasehold improvements 7,699 7,626 7,611
Gaming equipment, furniture
and fixtures 18,204 18,570 17,994
Construction in-progress 33,551 - 407
-------- -------- --------
79,281 46,290 45,918
Less: accumulated
depreciation
and amortization (10,202) (14,163) (14,884)
-------- -------- --------
$ 69,079 $ 32,127 $ 31,034
======== ======== ========
For the year ended December 31, 1994, interest costs totaling $248,000
were capitalized to land and improvements during construction of the
surface parking facility. In addition, interest costs totaling
$1.3 million and $1.8 million were capitalized on construction costs
related to the riverboat in 1993 and 1994, respectively, and are
included in construction in-progress. Construction in-progress at
December 31, 1994 consisted of construction costs related to GPRI's
riverboat. Effective January 1, 1995, these costs are now reflected
in the separate financial statements of GPRI.
Depreciation and amortization are computed using the straight-line
method over the following useful lives:
Useful Lives
------------------
Land improvements 15 years
Building and improvements 5 - 31.5 years
Leasehold improvements 5 - 23 years
Gaming equipment, furniture
and fixtures 5 - 31.5 years
(5) NEW VENUE PROJECTS
For the years ended December 31, 1994 and 1995, the Company expensed
$3.9 million and $402,000, respectively, of predevelopment expenses
related to various potential development opportunities in new gaming
venues throughout North America. The costs incurred represented
design, presentation, research, consulting, regulatory and other costs
associated with pursuing development opportunities in new gaming
venues. The Company expensed these costs as management determined
that each of the potential new gaming venues were no longer viable
development projects. In early 1995, the Company ceased such
activities due to its deteriorating financial condition.
In September 1994, the Company entered into an agreement to invest
$6.2 million for a 25% interest in Promociones e Inversiones de
Guerrero S.A. de C.V. ("PRIGSA"), a Mexico based development and
gaming Company with operations in Acapulco. As of December 31, 1994,
the Company had contributed $5.8 million towards its investment. In
1995, the Company contributed its remaining commitment of
approximately $289,000. The Company had an option to convert its
contributions to shares of common stock in PRIGSA upon approval by the
Mexican government. Results of PRIGSA operations upon opening in the
fall of 1994 were substantially below expectations and, as a result,
PRIGSA suffered significant operating losses. Because the majority of
PRIGSA's other debt securities are in a senior position to PRIGSA's
obligation to the Company, the Company has determined that it is
unlikely that the Company's advances will be repaid or that the
Company will otherwise realize its investment in PRIGSA. Accordingly,
as of December 31, 1994, the Company charged-off the full value of its
investment to impairment of assets in the accompanying consolidated
statements of operations.
(6) INVESTMENT IN AND ADVANCES TO GRAND PALAIS RIVERBOAT, INC.
As discussed in Note 1, GPRI was formed in March 1993 to design,
develop, own and operate a riverboat casino in New Orleans, Louisiana.
In connection with the issuance of the Old Notes, HEI escrowed
$79.2 million of the proceeds of the Old Notes for GPRI's share of the
development costs of the proposed Riverboat Project (Note 3). In June
1994, GPRI and CCCD formed the RCJV to develop the proposed Riverboat
Project. The original budgeted cost for the Riverboat Project was
$196.3 million, exclusive of capitalized interest. Through
December 31, 1994, the Company had invested $64.2 million in GPRI
relating to the construction of the riverboat, licensing, Dock Board
costs and funds invested in RCJV for construction of the entertainment
and dock facility. In addition, in 1994 the Company recorded net
losses of $3.3 million from GPRI, related to pre-opening costs of GPRI
and RCJV, offset by interest income. Amounts relating to GPRI have
been consolidated with HEI and its other subsidiaries in the
accompanying December 31, 1994 consolidated financial statements.
In April 1995, the Riverboat Project budget was revised to
approximately $223.0 million. The increased costs primarily related
to additional construction and design fees on the RCJV entertainment
and dock facility, funds which were spent to accomplish an accelerated
opening, and increased pre-opening costs, including additional
bankroll requirements, insurance costs and outside services for
staffing and operating the riverboats. GPRI intended to fund its
share of these additional costs by deferral of payments, cash flows
from the project and additional equity contributions from HEI and from
CCCD. Upon commencement of operations, revenues derived during the
period of operations of the Riverboat Project were approximately one
third of projected revenues. Accordingly, during the period of
operations (March 29, 1995 to June 6, 1995), GPRI incurred significant
operating losses. As a result of the construction cost overruns and
the failure of the Riverboat Project to generate sufficient revenues
to cover operating costs, GPRI determined it could no longer continue
the operation of its riverboat casino.
As of December 31, 1995, HEI's investment in GPRI had increased to
$73.5 million, primarily related to additional funds contributed in
1995 to cover construction overruns and operating losses. For the
year ended December 31, 1995, GPRI reported a net loss of $71.7
million, including a $20.2 million write-down of GPRI assets to
estimated realizable value and a $44.9 million write-down of its
interest in RCJV and assumption of certain RCJV debts to be paid by
GPRI pursuant to the GPRI Plan in connection with the sale of GPRI to
Casino America, Inc. As a result of the losses of GPRI, including its
write-down of RCJV, the Company's investment in GPRI has been reduced
to zero and no losses were recorded for the three month period ended
March 31, 1996, because such investment has been reduced to zero. As
discussed in Note 1, under the GPRI Plan, HEI will receive no
distribution on account of its current stock ownership in GPRI, and
HEI has also guaranteed $4.6 million of GPRI's debt.
(7) NOTES PAYABLE
Notes payable consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, Pro Forma
--------------------------- March 31, December 31,
1994 1995(1) 1996(1) 1995 (2)
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Senior Secured Pay-In-Kind Notes
(net of unamortized discount of
$5.9 million in 1994) $ 151,982 $ 174,274 $ 174,274 $ 50,000
Credit facility with a bank 13,048 - - 3,200
Notes payable to gaming equipment
vendors 3,793 2,623 2,623 -
Notes payable to RII - 2,122 2,122 -
Other - 4,600 4,600 2,100
--------- --------- --------- ---------
168,823 183,619 183,619 55,300
Less: current portion (14,610) - - (952)
--------- --------- --------- ---------
$ 154,213 $ 183,619 $ 183,619 $ 54,348
--------- --------- --------- ---------
(1) These amounts are included in "liabilities subject to compromise" in the accompanying
December 31, 1995 and March 31, 1996 consolidated balance sheets.
(2) See Note 1 for further information.
</TABLE>
Debtor-in-Possession Financing
On December 8, 1995, the Court approved certain financing and security
agreements (the "DIP Facility") between the Debtor and an unaffiliated
lender (the "DIP Lender") designed to provide the Debtor with adequate
financing to operate its businesses during the bankruptcy period. The
aggregate DIP Facility was $7.9 million in the form of revolving
credit facilities to provide up to $2.5 million for working capital
purposes, $4.4 million for equipment refinancing and $1.0 million to
provide financing for the Debtor's possible acquisition of strategic
assets (Note 12).
Borrowings under the DIP Facility are secured by a first priority lien
and security interest in all of the Debtor's property and equipment,
except for certain "permitted liens" as defined in the DIP Facility
agreements. In addition, borrowings under the DIP Facility constitute
Allowed Superpriority Administrative Expense Claims and, therefore,
have priority over substantially all other administrative expense
claims of the bankruptcy proceedings. The DIP Facility will be repaid
with proceeds from the Exit Financing (see below).
Interest on borrowings under the DIP Facility accrue interest at prime
plus 2.75%. Loan fees and other expenses totaling $300,000 were paid
to the DIP Lender, which amounts are included in other assets in the
accompanying consolidated balance sheets and are being amortized over
the one-year term of the facility.
The term of the DIP Facility is one year subject to an accelerated
maturity on the effective date of confirmation of the proposed Plan.
The Debtor is subject to certain covenants which require, among other
things, that the Debtor maintain certain financial ratios, and that
restrict, among other things, the incurrence of additional debt, the
disposal of assets and capital expenditures. As of December 31, 1995,
and April 11, 1996, there were no outstanding borrowings under the DIP
Facility.
Exit Financing
It is a condition precedent to the effectiveness of the proposed Plan
that the Debtor will have closed on a facility from the DIP Lender to
provide up to a $12.5 million revolving credit facility to the
Reorganized Company to replace the existing DIP Facility. Borrowings
under the revolving credit facility will be used for working capital
purposes, refinancing of existing equipment secured debt and for
construction of a parking structure located near the Bullwhackers
Casino (see Note 12) and adjacent to the proposed Silver Hawk Casino
in Black Hawk, Colorado. Borrowings, including accrued interest at
prime plus 2.375%, would be payable monthly, subject to a maximum
five-year term, and would be secured by a first priority lien and
security interest in substantially all the assets of the Reorganized
Company.
Senior Secured Pay-In-Kind Notes
On December 21, 1993, the Company completed a private offering of
140,000 units consisting of $140 million aggregate principal amount of
the Old Notes with detachable warrants to acquire 1,750,000 shares, or
10%, of common stock of the Company. The warrants were valued by the
Company at $7 million, which amount was offset against the Old Notes
balance and was being amortized as interest costs over the seven-year
term of the Old Notes. The net proceeds from the offering, after
deducting the commissions and other offering expenses were
approximately $131 million. The net proceeds were used to repay
construction financing for the Bullwhackers Casinos and provide funds
for the Riverboat Project and for working capital purposes. The
offering expenses of approximately $9 million, were capitalized as
other assets, and were being amortized over the seven-year term of the
Old Notes using the effective interest rate method. As of
December 31, 1995, all remaining unamortized discount and offering
expenses related to the Old Notes were written-off as a reorganization
item in accordance with SOP 90-7.
Interest on the Old Notes accrued at 12% per annum and was payable
semiannually on June 15 and December 15, commencing June 15, 1994.
Through December 15, 1995, at the Company's option, interest on the
Old Notes was payable either in cash or through the issuance of
additional Old Notes. Thereafter, the Company was required to pay
interest on the Old Notes in cash. On June 15 and December 15, 1994,
the Company made interest payments on the Old Notes by issuing a total
of $17 million of additional Old Notes. On June 15, 1995, the Company
made interest payments on the Old Notes by issuing a total of
$9.4 million of additional Old Notes. No interest payment or issuance
of additional Old Notes was made on December 15, 1995, because of the
Debtor's bankruptcy filing.
The Old Notes were redeemable by the Company, in whole or in part, at
any time beginning December 15, 1996, at certain times and redemption
prices as specified in the Old Notes Indenture. Unless previously
reduced, the Company was required to redeem, at par plus accrued
interest, 20% of the then outstanding aggregate principal amount of
the Old Notes on each of December 15, 1998 and 1999, with the
remainder due in December 2000. To date, no Old Notes have been
redeemed.
The Old Notes were secured by substantially all the assets of the
Company, including the common stock of its subsidiaries, GPRI's joint
venture interest in the RCJV, guarantees of certain of HEI's
subsidiaries, and other personal property. The Company was also
subject to certain covenants which restricted, among other things, the
incurrence of additional debt, payment of dividends, ownership of new
subsidiaries, new business activities, proceeds from the sale of
assets and transactions with affiliates.
As discussed in Note 1, in June 1995, HEI received "Notices of
Defaults" from the trustee of the Old Notes, alleging that HEI was in
default under various provisions of the Indenture. As a result of the
defaults under the Indenture, the holders of the Old Notes are
entitled to all of the remedies contained in the Indenture, including
but not limited to acceleration of repayment of the Old Notes and
foreclosing on the security pledged by the Company to the trustee.
On November 7, 1995, the Debtor filed for Chapter 11 protection.
Accordingly, interest totaling approximately $3 million was not
accrued for the period November 7, 1995 to December 31, 1995.
Additionally, for the three months ended March 31, 1996, interest
totaling $5.2 million was not recorded due to the Chapter 11
proceedings. As of December 31, 1995, the total amount of the Old
Notes, plus accrued interest through November 7, 1995, is $174.3
million which amount is included in "liabilities subject to
compromise" in the accompanying consolidated balance sheets.
The Debtor negotiated with a committee comprised of certain of the
holders of the Old Notes to restructure the Old Notes. Pursuant to
the proposed Plan, the holders of the Old Notes, along with RII, (see
below) will receive, on a pro rata basis, New Senior Secured Notes
("New Notes") having an aggregate principal amount of $50 million and
5 million shares of common stock of the Reorganized Company (Note 8).
Interest will accrue at a rate of 12% per annum, and is payable semi-
annually. Through the first year, at the option of the Reorganized
Company, interest on the New Notes will be payable either in cash or
through the issuance of additional New Notes. Thereafter, the
Reorganized Company will be required to pay interest on the New Notes
in cash. The New Notes will be secured by substantially all the
assets of the Reorganized Company, including the common stock of the
subsidiaries. The New Notes will be redeemable after the fourth
anniversary at redemption prices to be set forth in the New Notes
Indenture subject to final maturity in 2003. In addition, the New
Notes Indenture will include certain restrictive covenants.
Other Borrowings
On May 15, 1995, HEI entered into a $4 million working capital credit
facility with RII. HEI borrowed $2 million under this facility, which
proceeds were then invested in GPRI. Borrowings accrued interest at
12% and were due on September 30, 1995. The Company granted a
security interest to RII in certain of the Company's assets including
a subordinated interest in GPRI's riverboat. HEI was unable to repay
the $2 million and thus is in default under the RII facility.
Interest totaling $35,000 was not accrued from the petition date,
November 7, 1995 to December 31, 1995. Additionally, for the three
months ended March 31, 1996, interest totaling $60,000 was not
recorded due to the Chapter 11 proceedings. The $2 million, plus
accrued and unpaid interest through November 7, 1995 totaling
$2.1 million, is included in "liabilities subject to compromise" in
the accompanying consolidated balance sheet as of December 31, 1995.
Pursuant to the proposed Plan, RII will receive New Notes and shares
of common stock of the Reorganized Company as discussed above.
In 1994, GPRI obtained a credit facility from a Bank in the amount of
$15 million to fund a portion of the riverboat casino construction.
As of December 31, 1994, GPRI had borrowed $13.0 million under this
facility. Borrowings accrued interest at prime plus 1% and matured on
April 24, 1995 and accordingly, were reflected as a current note
payable in the accompanying December 31, 1994 consolidated balance
sheet. Effective January 1, 1995, as a result of the de-consolidation
of GPRI, borrowings under this credit facility are no longer recorded
in the consolidated balance sheets and are recorded in the separate
financial statements of GPRI. BWBH, Inc. and BWCC, Inc. are
guarantors under this credit facility and, accordingly, the Bank has
filed a claim in the bankruptcy proceedings of the Debtor. However,
the Bank's claims are expected to be satisfied in accordance with the
proposed GPRI Plan (note 13).
During 1991 and 1992, RII made acquisition, development and
construction loans to the Company totaling $24.3 million ("RII Notes")
for the Bullwhackers Casinos. The original maturity date of the RII
Notes was October 31, 1996. The RII Notes were repaid with proceeds
from the Old Notes in December 1993. Prior to repayment, interest on
the RII Notes accrued at 14.5% and was payable quarterly. Upon
prepayment, RII received bonus interest totaling $700,000 in
accordance with the terms of the RII Notes. To obtain the financing,
the Company paid RII loan fees totaling $729,000. The unamortized
balance of these loan fees upon repayment, totaling $457,800, was
written off as interest expense in 1993.
In May 1992, the Company signed a note agreement with its construction
contractor for payment of outstanding construction costs related to
the Bullwhackers Casinos. The note, as modified in 1993, required
monthly interest payments at prime plus 2%, with maturity in December
1994. This note was repaid with proceeds from the Old Notes in
December 1993.
The Company financed a portion of the purchase price of the land on
which the Bullwhackers Casino in Central City, Colorado is located
with a purchase money note payable to the seller. The note required
monthly payments of principal and interest of $108,100 (at 10%)
through its October 1994 maturity date. This note was repaid with
proceeds from the Old Notes in December 1993.
The Company financed the acquisition of a portion of the Bullwhackers
Casinos' gaming equipment with notes payable to an equipment vendor
totaling $7.0 million. Such notes are secured by the gaming equipment
and the proceeds from the gaming equipment and are guaranteed by
certain of the HEI's stockholders. In April 1993, the terms of the
notes payable were modified. Beginning April 1993, the then
outstanding principal balance and accrued interest were combined and
began accruing interest at a fixed rate of 9.5%. Monthly principal
and interest payments of $151,000 were required through April 1997.
As of the petition date, November 7, 1995, the Company stopped
accruing interest, totaling $37,940, for the period from November 7,
1995 to December 31, 1995, and making any repayments on these notes.
Subsequent to yearend, the Company reached an agreement with the
lender to repay the $2.6 million outstanding balance on the notes for
approximately $2.0 million with proceeds from the DIP Facility
realizing a 20% discount for retiring the notes (note 13).
(8) CAPITAL STRUCTURE
Capital Structure After Consummation of the Proposed Plan
The proposed Plan provides for the amendment and restatement of the
Company's certificate of incorporation and bylaws. The new charter
will authorize 20 million shares of $.01 par value common stock. The
holders of the Old Notes and RII (Note 1) will receive 5 million
shares of common stock, representing 100% of the outstanding shares of
common stock subject to being diluted to 90% by certain stock grants
to be issued to senior management employees and non-employee directors
of the Reorganized Company pursuant to a proposed Management Incentive
Program and under an employment agreement with the chief executive
officer of the Reorganized Company.
Capital Structure Prior to the Consummation of the Plan
Preferred Stock
Preferred stock of the Company consists of 2 million authorized
shares, of which none has been issued.
Common Stock
Common stock of the Company consists of 50 million authorized shares.
All common stock will be canceled under the Plan (Note 1). In 1993,
10,269,641 were issued pursuant to the restructuring (Note 1). In
addition, warrants to purchase a total of 7,130,359 shares of common
stock were issued in connection with the restructuring (2,399,373
shares), the issuance of the Old Notes (1,750,000 shares) (Note 7) and
the loan from an affiliate (2,980,986 shares) (Note 11). The warrants
are immediately exercisable at a price of $.01.
The warrants to acquire 2,399,373 shares of common stock of the
Company were issued to certain individuals having ownership rights in
the predecessors to the Company. These warrants were assigned a
nominal value because these individuals acquired such rights in
connection with the formation of the predecessor companies at either
nominal or no cost. A consultant to the Company in connection with
the Company's Riverboat Project received 1,605,739 of such warrants in
exchange for his right to receive ownership in the predecessor
companies. In 1994, 421,854 shares of common stock were converted
into warrants to acquire 421,854 shares of common stock as a result of
transfers to this consultant from an existing shareholder. In 1995,
certain warrants were converted into 1,849,781 shares of common stock.
The Company adopted an "Omnibus Stock and Incentive Plan" (the "Stock
Plan") in December 1993. A maximum of 1,000,000 shares were reserved
for issuance under the Stock Plan. The Stock Plan was to terminate
five years from the date of its adoption, unless sooner terminated by
the Board of Directors. In 1993 the Company granted a total of
130,000 shares of restricted shares to officers of the Company and a
consultant. In 1994, 28,000 shares of Restricted Stock were
forfeited. In 1994 the Company granted 60,000 ISO's to a former
officer to purchase shares of common stock of the Company at an
exercise price of $4.00 per share. The options vest equally over
three years with the first vesting date on April 1, 1995. In 1995 the
Company granted 85,000 restricted shares and 85,000 options, at an
exercise price of $4.00 per share, to a current officer of the
Company. Both the options and restricted stock shares vest equally
over a three year period. All grants under the Stock Plan will be
forfeited as a result of the proposed Plan (Note 1). The Company
recognized compensation expense of $169,000 in 1995 related to the
vesting of the restricted shares. No additional compensation expense
was recognized after November 7, 1995.
Warrants Issued
Warrants issued includes $7 million of value assigned to the Old Notes
warrants (Note 7) and, in 1994, $1.3 million of value assigned to the
GPRI warrants (Note 11). The Company has warrants outstanding to
purchase 5,702,432 shares of common stock at a nominal exercise price.
Subject to obtaining any necessary gaming approvals, the warrants may
be exercisable any time after their issuance. Prior to the exercise
of the warrants, holders of warrants are not entitled to any of the
rights of a holder of the Company's common stock, including the right
to vote or to receive dividends. All warrants will be extinguished
and canceled under the proposed Plan (Note 1).
Non-Employee Director Stock Option Plan
The Company has also adopted the "Non-Employee Director Stock Option
Plan." Only non-employee directors are eligible to participate in the
Non-Employee Director Stock Option Plan. A total of 100,000 shares of
common stock are authorized and reserved for issuance under the Non-
Employee Director Stock Option Plan.
A total of 20,000 options have been granted and vested to five non-
employee directors at an exercise price of $4.00 per share. All
grants under the Non-Employee Director Stock Option Plan will be
extinguished and canceled under the Plan.
(9) INCOME TAXES
The Company has no provision for income taxes in 1994 or 1995 and for
the three months ended March 31, 1996, due to the Company's
significant loss position. Prior to December 21, 1993 or the
formation of the Company, taxes were not provided on the predecessor
entities because all tax obligations of those entities passed through
to the owners of those entities.
The Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109"), in December 1993.
SFAS 109 requires recognition of deferred tax assets and liabilities
based on enacted tax laws for any temporary differences between the
financial reporting and tax basis of assets, liabilities and
carryforwards. Deferred taxes are then reduced, if deemed necessary,
by a valuation allowance for the amount of any tax benefits which,
based on management's opinion, are not expected to be realized. The
net deferred tax asset as of December 31, 1994 and 1995 is comprised
of the following:
December 31
-----------------------
1994 1995
--------- ---------
(in thousands)
CURRENT:
Accrued vacation and
gaming liabilities $ 356 $ 184
NON-CURRENT:
Differences in asset basis 3,478 3,053
Start up costs/intangibles
capitalized for tax 1,967 -
Impairment of assets 3,164 5,832
Reorganization items - 4,287
Deferred interest for tax 404 404
Book tax difference of RCJV - 8,646
Net operating loss carryforwards 7,899 41,148
-------- --------
Net deferred tax asset 16,864 63,554
Valuation allowance (16,864) (63,554)
-------- --------
$ - $ -
======== ========
The net deferred tax asset valuation allowance is equal to the full
amount of the net deferred tax asset because the realization of such
asset is dependent upon future taxable income, which is uncertain.
The Company currently has net operating loss carryforwards totaling
approximately $103 million, which expire beginning in 2008. These net
operating loss carryforwards do not include the separate company net
operating loss generated by GPRI in 1995.
Generally, the Company anticipates that the reorganization will allow
the Company to produce income from operations and potentially taxable
income and net income for financial reporting purposes. Since its
inception, the Company has generated significant net operating loss
carryforwards for tax purposes, which, in the absence of the Company's
bankruptcy, would have been available to offset any taxable income
earned in the future. As a result of the consummation of the proposed
Plan, the Company may undergo a substantial change in ownership and
incur significant forgiveness of indebtedness income. Additionally, a
significant portion of the tax assets includes tax losses of GPRI. If
GPRI is unable to reattribute those losses to HEI, then those assets
will be transferred to Casino America in connection with the sale of
GPRI stock to Casino America. If HEI is unable to attain such assets
the debt forgiveness income and the potential ownership change may
significantly limit or eliminate the Company's net operating loss
carryforwards and other tax benefits. Fresh start accounting requires
the Company to significantly increase the book basis of its assets,
the tax basis of those assets generally remain at their historical
basis. Therefore, given the potential limitation or elimination of
the Company's net operating loss carryforwards and the increased book
depreciation and amortization charges, the Company may have taxable
income in the future, and, therefore, may be required to pay income
taxes, even though it may record a loss for financial reporting
purposes.
(10) LEASES
Capital Leases
On March 1, 1993, the Company entered into a Master Lease Agreement
with Capital Associates International, Inc. ("CAI") for lease
financing totaling $2.2 million to provide working capital. Certain
of the Company's equipment was pledged as security for the borrowings.
The Debtor, and certain of HEI's stockholders also guaranteed
repayment of the borrowings. In 1995, the Master Lease Agreement was
amended to provide $2.8 million in additional lease financing to be
used for the Riverboat Project and to be repaid by GPRI. The
financing has been treated as a capital lease in the separate
financial statements of the Company and of GPRI.
As a result of the termination of Riverboat Project operations, GPRI
was unable to make its required payments under the lease.
Accordingly, CAI initiated a lawsuit against the Company (Note 12) to
recover all amounts owing under the Master Lease, as amended ("Lawsuit
#1"). The finance company initiated a second lawsuit against the
Company and certain of its officers alleging that the finance company
was misled into entering into the amendment to the Master Lease
Agreement ("Lawsuit #2"). In September 1995, a judgment was entered
against the Company in Lawsuit #1 for $4.6 million, which judgment has
been appealed by the Company. This amount is reflected as a liability
subject to compromise in the accompanying consolidated balance sheets.
In February 1996, the parties to the two lawsuits entered into a
settlement agreement which seeks to resolve the disputes. Pursuant to
the settlement agreement, both lawsuits will be dismissed and the
Reorganized Company will issue two notes payable to CAI. The first
note will be in the amount of $1.6 million, payable in 10 quarterly
installments of principal and interest (at 9% per annum) and will be
unsecured. The second note will be in the amount of $3.0 million,
payable in 20 quarterly installments of principal and interest (at 9%
per annum) and will be unsecured. Payments on each note will begin 90
days after the effective date of confirmation of the proposed Plan.
The settlement agreement further provides that if the finance company
receives any distributions (as defined) from its claims in the GPRI
bankruptcy, or if Casino America, Inc. agrees to assume any or all of
the finance company liability, then such amounts will serve to reduce
the amounts payable under the $3.0 million note first, then the
$1.6 million note (note 13). The terms of the settlement agreement
must be approved by the Court.
The Company also has capital lease obligations related to gaming
devices and certain other equipment totaling $1.6 million. The
interest rate for the various leases range from 12% to 15%. As a
result of the bankruptcy proceedings, all capital lease obligations
have been reclassified as "liabilities subject to compromise" in the
accompanying consolidated balance sheets. Subsequent to yearend, an
agreement was reached with such lessors to retire the remaining lease
obligation for approximately $1.2 million.
Operating Leases
The Company leases real property, on which the Bullwhackers Casino in
Black Hawk, Colorado, was constructed. The lease is for a period
through 2015 and requires an annual base rent as specified below,
payable quarterly.
The land lease also requires monthly payments of additional rent equal
to 1.9% of gross revenues, as defined. Total base rent plus additional
rent pursuant to the lease agreement for the years ended December 31,
1993, 1994 and 1995 and the three months ended March 31, 1995 and 1996
was $986,000, $1.1 million, $1.1 million, and $291,000 and $302,000,
respectively. In addition to the specified rental payments, the
Company is also responsible for any and all costs associated with the
leased property, including but not limited to taxes and assessments,
utilities, insurance, maintenance and repairs. The Company has an
option to purchase the leased land, beginning November 1, 2001, for an
amount equal to nine times the annual base minimum rent payment then
in effect.
Future annual base rental payments for the land lease as of December
31, 1995 are as follows:
Year ending December 31 (in thousands)--
1996 $ 600
1997 600
1998 600
1999 600
2000 600
Thereafter 10,070
-------
Total $ 13,070
=======
Beginning in September 1994, the Company entered into an approximate
seven year lease for office space. The lease agreement requires
monthly payments of approximately $23,300.
As a result of the bankruptcy proceedings, the Debtor may reject
certain leases under the provisions of the Bankruptcy Code. The
Reorganized Company anticipates ratifying the Black Hawk land lease.
However, the Debtor has renegotiated the terms of its office space.
Under the revised lease terms, which were approved by the Court, the
Reorganized Company will surrender its $200,000 security deposit to
the landlord and pay monthly rent of $7,500 through October 1997, at
which time the lease will terminate.
(11) OTHER RELATED PARTY TRANSACTIONS
Due from Affiliates
The Company has outstanding advances to the following affiliates
(in thousands):
December 31,
------------------------ March 31,
1994 1995 1996
----------- ----------- -----------
(unaudited)
Canadian Pavilion
Limited Partnership $1,323 $1,573 $1,573
Outlaws Casino, Ltd. 876 1,072 1,072
RCJV 763 43 43
RCH Investments, NV 250 259 259
Hemmeter Partners 344 335 335
Grand Palais Casino, Inc. 557 587 587
Officers 585 867 867
Other 62 35 35
----- ----- -----
$4,760 $4,771 $4,771
===== ===== =====
Canadian Pavilion Limited Partnership ("CPLP"), Outlaws Casino, Ltd.
("Outlaws"), RCH Investments, NV ("RCH") and Hemmeter Partners are
majority owned by certain of the current controlling shareholders and
officers of HEI. The advances to CPLP, Outlaws, RCH, and Hemmeter
Partners accrue interest at 14% with interest payable quarterly, and
are due on demand. Grand Palais Casino, Inc. ("GPCI") is a wholly
owned subsidiary of Grand Palais Enterprises, Inc. ("GPEI"), of which
certain stockholders are also current stockholders of HEI. This
advance accrues interest at 14% and is due on demand. In July 1994,
Kevin G. DeSanetis, then Executive Vice President and Chief Operations
Officer received a $225,000 advance in accordance with the terms of
his employment agreement of which none has been repaid. In September
1994, Christopher B. Hemmeter, the President and Chief Executive
Officer was advanced funds totaling $275,000, accruing interest at
prime plus 2%, and due on demand. In January 1995, an additional
$373,000 was advanced to Mr. Hemmeter on an interest free basis, of
which $110,000 has been repaid. As of December 31, 1995 and March 31,
1996, the outstanding advances to Mr. Hemmeter totaled $641,000. All
advances to affiliates were made on an unsecured basis.
In 1994, the Company established a reserve of $1 million for certain
affiliate receivables that management believed may not be collectible.
Because of the continued deterioration in 1995 of the financial
condition of the affiliates and certain officers to which the Company
has advanced funds, the Company has determined that it is unlikely
that it will collect any of the advances to affiliates and,
accordingly, has provided an additional reserve of $3.9 million for
the remainder of the amounts owed the Company. These amounts are
reflected as impairment of assets in the accompanying consolidated
statements of operations. The Company continues to pursue collection
of the advances to affiliates.
Consulting Agreement
GPRI was party to a consulting agreement whereby the consultant was
entitled to receive an initial consultation fee and a supplemental $3
million fee in exchange for the consultant's assistance in obtaining
necessary licensing and other regulatory approvals with respect to the
Riverboat Project. In addition, the consultant was paid an initial
consultation fee of $2.8 million for his services with respect to the
Riverboat Project and GPCI project. Of this amount, 10% or $280,000,
was allocated to the Company based on relative estimates of the
potential value of the Riverboat Project and GPCI project. This
amount is included in other assets in the accompanying consolidated
balance sheet as of December 31, 1994. As a result of the
deconsolidation of GPRI, these amounts are now reflected in the
separate financial statements of GPRI. This consultant has initiated
a lawsuit against the Company as described further in Note 12.
Transactions with GPCI
In 1992 and 1993, GPCI completed private offerings of senior secured
exchangeable notes. Certain of HEI's majority stockholders are also
stockholders and warrant holders, including Christopher B. Hemmeter
and Daniel Robinowitz of GPCI's parent company, GPEI. In September
1993, $7.5 million of the net proceeds of GPCI's private offering were
loaned to GPRI. The loan was evidenced by a demand note payable to
GPCI and accrued interest at 12%. The loan was repaid with proceeds
from the Old Notes (Note 7). As additional consideration, the GPCI
noteholders were to be issued warrants to purchase one share of GPRI's
common stock per warrant for $.01 (the "GPRI Warrants"). In
connection with the formation of the Company, the GPCI noteholders
were issued warrants to purchase 2,980,986 shares of common stock of
the Company. These warrants were valued at $1.3 million, which amount
was offset against the $7.5 million demand note and amortized as
interest costs. The $1.3 million of interest costs were then
capitalized as part of construction in-progress (Note 4) in the
accompanying consolidated balance sheet as of December 31, 1994. As a
result of deconsolidation of GPRI in 1995, these amounts are now
reflected in the separate financial statements of GPRI.
During 1993, GPCI had advanced other funds to GPRI. The advances
totaled $2.2 million, accrued interest at 12% and were unsecured.
Proceeds from the Old Notes were used to repay $1.7 million of the
advances in 1993. The remaining $490,000 was repaid in the first
quarter of 1994. The Company advanced GPCI an additional $556,500 and
$30,000 in 1994 and 1995, respectively, which is included in due to
affiliates in the accompanying consolidated balance sheets. As of
December 31, 1995, all outstanding amounts have been reserved as
uncollectable due to the bankruptcy filing of Harrah's Jazz Company,
of which GPCI is a one-third equity partner.
Other
Hemmeter Partners, an affiliate of Christopher B. Hemmeter, leased an
aircraft that Mr. Hemmeter used for business and personal purposes.
In exchange for Mr. Hemmeter making the aircraft available to the
Company for business purposes, the Company agreed to pay Mr.
Hemmeter's affiliate approximately $100,000 per month and to pay the
salary and benefits of the aircraft pilot and co-pilot, which totaled
approximately $125,000 per year. Direct payments to Hemmeter Partners
totaled $1.5 million and $420,000 for 1994 and 1995, respectively.
Payments made by the Company with respect to the aircraft represent
the Company's pro rata share of the costs and expenses associated with
the aircraft and are adjusted based on actual use of the aircraft.
The Company ceased using the aircraft and terminated this arrangement
as of May 1995.
The Company paid $1.5 million, $1.3 million and $624,000 to the law
firm of Shefsky Froelich & Devine Ltd. for legal services rendered to
the Company in 1993, 1994 and 1995, respectively. Cezar M. Froelich,
a director owns 1.4% of the Company on a fully diluted basis, is a
member of that firm. Shefsky Froelich & Devine Ltd. provided legal
services to the Company until February 9, 1996. Any further payments
to Shefsky Froelich & Devine Ltd., are subject to Bankruptcy Court
approval.
Christopher B. Hemmeter received no compensation for acting as Chief
Executive Officer in 1993. The value of these services provided by Mr.
Hemmeter was not material.
(12) COMMITMENTS AND CONTINGENCIES
Gaming Licenses
The Bullwhackers Casinos are required to comply with laws and
regulations promulgated by the Colorado Gaming Commission in order to
maintain continued operations. The Bullwhackers Casinos operate under
separate current annual gaming licenses which expire in December 1996.
Management anticipates that such gaming licenses will be renewed.
Gaming Taxes and Fees
The Bullwhackers Casinos operate as licensed gaming establishments
pursuant to the Colorado Limited Gaming Act and, accordingly, are
required to make monthly gaming tax payments to the State of Colorado
which are subject to annual revisions with a maximum rate of 40%.
Such tax is calculated as a percentage of adjusted gross proceeds
(casino net win).
Gross Proceeds Tax Rate
------------------------- ----------
First $2 million 2%
Next $2 million 8%
Next $1 million 15%
Proceeds over $5 million 18%
Additionally, the city and state levy device fees ranging from $75 to
$1,265 per annum. For the years ended December 31, 1993, 1994 and
1995 and the three months ended March 31, 1995 and 1996, the Company
recorded $7.7 million, $8.2 million and $8.3 million, and $2.2 million
and $2.0 million, respectively, in total gaming taxes and device fees.
Black Hawk Parking Facility
The Company acquired a land parcel on which it constructed a 260 stall
surface parking facility. As part of the land development, the
Company agreed to conduct environmental remediation of the land parcel
pursuant to an Administrative Order on Consent with the Environmental
Protection Agency ("EPA") and the State of Colorado Department of
Health. The Company expended approximately $1.8 million for this
remediation work in 1994. The cost of the remediation was anticipated
and provided for from the net proceeds of the Old Notes and has been
capitalized as part of the land acquisition as incurred because the
work was necessary to prepare the property for its intended use.
Possible additional remediation costs are estimated at approximately
$1 million. However, the Company believes, based on consultations
with various governmental agencies and correspondence with the EPA,
that the likelihood of the EPA or other regulatory agencies requiring
this further remediation is remote.
The City of Black Hawk assesses each casino which provides off-site
parking to its patrons, a $4 per day per stall parking fee, which is
included in casino expense. The Company anticipates that upon
commencement of operations of the proposed Silver Hawk Casino (see
below), the parking fee will terminate.
Legal Proceedings
In September 1995, Daniel P. Robinowitz, a pre-effective date
stockholder of the Company (Note 11), filed a stockholders derivative
action against the directors of the Company in the United States
District Court for the Eastern District of Louisiana (the "Robinowitz
Derivative Action"). The complaint alleges in general that the
Company, through its board of directors, mismanaged the affairs of the
Company. Because the Company filed bankruptcy prior to any responsive
pleadings being filed, no activity has occurred in this case. The
Company appointed its chief executive officer to serve as a special
litigation committee for the board of directors of the Company and he
retained independent counsel in October 1995 to investigate the
allegations raised by the complaint.
Pursuant to the proposed Plan, certain claims by the Company against
third parties, including the Robinowitz Derivative Action, are
assigned to the Litigation Trust. All legal proceedings pending
against the Company or its Colorado subsidiaries prior to the
effective date of the proposed Plan will be settled pursuant to the
proposed Plan. As a result, there will be no litigation pending
against the Reorganized Company or its Colorado subsidiaries on the
effective date of the proposed Plan. The determination by the
Litigation Trust whether or not to pursue any causes of action
assigned to it will have no material impact on the Reorganized Company
or the Colorado subsidiaries.
The proposed Plan provides that the Company's obligation to indemnify
certain of its officers against any claims asserted against them as a
result of their service as employees of the Company, both before and
after the commencement of the Debtor's bankruptcy cases, will not be
affected by the Debtor's bankruptcy cases and that the Company will
assume any obligations of GPRI to indemnify the two officers discussed
above against claims arising as a result of their service with GPRI.
The proposed Plan also provides that the officers will be released
from any liability in respect of causes of action assigned to the
Litigation Trust.
The proposed Plan also provides that the Company's obligations to
indemnify its other officers and employees, other than Christopher B.
Hemmeter and Mark M. Hemmeter (collectively, the "Hemmeters"), against
claims against them as a result of their service with the Company
after the commencement of the Debtor's bankruptcy cases will not be
affected by the Debtor's bankruptcy cases and that the Company will
assume any similar indemnity obligations of GPRI.
The proposed Plan also requires the Company to indemnify its pre-
effective date directors other than the Hemmeters (the "Independent
Directors") against any claim asserted against them as a result of
their service as directors of the Company if the final report of the
Independent Litigation Counsel indicates that there is no basis for
pursuing any of the potential claims against them reviewed by the
Independent Litigation Counsel. The Company's maximum indemnity
obligation for all of the Independent Directors is capped at $500,000
in the aggregate. Although the Company has no direct indemnity
obligations with respect to claims against the Hemmeters, if a claim
is asserted against both the Independent Directors and the Hemmeters,
the Hemmeters will be entitled to be represented by the counsel
representing the Independent Directors at the expense of the Company
to the extent that the claims are based on the Hemmeters' actions as
directors of the Company.
The Company's management believes that the ultimate resolution of all
legal proceedings will not have a material adverse impact on the
Company's financial position or results of operations.
(13) EVENTS SUBSEQUENT TO THE DATE OF
THE AUDITORS' REPORT (Unaudited)
GPRI Plan
On May 3, 1996, the Company closed on the sale of its stock ownership
in GPRI to Casino America, thus signifying the effectiveness of GPRI's
Plan. The aggregate consideration paid by Casino America totaled
approximately $59 million. All proceeds from the sale will be
distributed to the creditors of GPRI, including the holders of the
Company's Old Notes, pursuant to the GPRI Plan. Part of the
consideration given by Casino America was the assumption of $2.5
million of the CAI $3 million note. Accordingly, the Company is only
obligated for the remaining $500,000. Additionally, the effectiveness
of the GPRI Plan released the Company and all of its remaining
subsidiaries from any obligations to GPRI, RCJV, and their creditors.
Silver Hawk Acquisition
On March 27, 1996, Silver Hawk Casino, Inc. ("Silver Hawk") was
incorporated in Delaware as a wholly owned subsidiary of Hemmeter
Enterprises, Inc., for purposes of acquiring and operating a limited
stakes casino in Black Hawk, Colorado. On April 12, 1996, Silver Hawk
closed on the purchase of a non-operated casino located adjacent to
the Company's Black Hawk parking facility. The purchase price was
approximately $2.7 million, of which $900,000 was paid in cash
borrowed under the DIP Facility and the remaining $1.8 million by the
issuance of a promissory note from the seller. The promissory note
requires monthly principal and interest payments at a rate of 9.5% per
annum, based on a twenty-year amortization period, with a balloon
payment after seven years. The note is secured by a first deed of
trust on the purchased property. Additionally, the Company intends to
invest up to an estimated $2.0 million to equip and prepare the Silver
Hawk for opening. The Company expects to commence gaming operations
in July 1996.
Equipment Refinancing
On April 12, 1996, the Company refinanced equipment with an
outstanding debt balance of approximately $2.6 million for
approximately $2.0 million. The Company realized a $516,000
extraordinary gain for the early retirement of the existing debt. The
debt was refinanced with proceeds from the DIP Facility.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To
Grand Palais Riverboat, Inc.:
We have audited the accompanying statement of net assets in
liquidation of Grand Palais Riverboat, Inc. (a Louisiana corporation
and a wholly owned subsidiary of Hemmeter Enterprises, Inc.) as of
December 31, 1995. We have also audited the accompanying balance
sheet of Grand Palais Riverboat, Inc. as of December 31, 1994 and the
related statements of operations, stockholder's equity and cash flows
for each of the two years ended December 31, 1995 and 1994 and for the
period from inception (March 29, 1993) through December 31, 1993.
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
audits 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.
As discussed in Note 1, during 1995, the Company terminated its
operations and filed a voluntary petition under Chapter 11 of the
Federal Bankruptcy Code. The Plan of reorganization, which was
approved by the U.S. Bankruptcy Court on March 29, 1996, provides for
settlement of all claims and liabilities of the Company and sale of
one hundred percent of the reorganized company to an unrelated party.
As a result, effective December 31, 1995, the Company adopted the
liquidation basis of accounting. Accordingly, the carrying values of
the remaining assets as of December 31, 1995, are presented at
estimated realizable values and all liabilities are presented at
estimated settlement amounts.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the net assets in liquidation of
Grand Palais Riverboat, Inc. as of December 31, 1995 and the financial
position of Grand Palais Riverboat, Inc. as of December 31, 1994, and
the results of its operations and cash flows for each of the two years
ended December 31, 1995 and 1994 and for the period from March 29,
1993 (date of inception) through December 31, 1993, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
New Orleans, Louisiana,
April 11, 1996.
GRAND PALAIS RIVERBOAT, INC.
(DEBTOR-IN-POSSESSION)
STATEMENT OF NET ASSETS IN LIQUIDATION
AS OF DECEMBER 31, 1995
(in thousands)
ASSETS
Assets held for sale $ 58,864
LIABILITIES
CURRENT LIABILITIES:
Accounts payable and accrued liabilities 1,100
Debtor-in-possession financing 1,488
-------
Total current liabilities 2,588
LIABILITIES NOT SUBJECT TO COMPROMISE 1,025
LIABILITIES SUBJECT TO COMPROMISE 55,493
-------
Total liabilities 59,106
-------
NET ASSETS $ (242)
=======
The accompanying notes are an integral part of this statement.
GRAND PALAIS RIVERBOAT, INC.
(DEBTOR-IN-POSSESSION)
BALANCE SHEET
AS OF DECEMBER 31, 1994
(in thousands, except share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,334
Due from affiliates 823
Deposits 1,012
Prepaid expenses and other 102
-------
Total current assets 4,271
PROPERTY AND EQUIPMENT, net 31,861
INVESTMENT IN RIVER CITY JOINT VENTURE 18,010
RESTRICTED FUNDS IN ESCROW 14,440
OTHER ASSETS, net 11,334
-------
$ 79,916
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Due to affiliates $ 2,683
Note payable to a bank 13,048
Accounts payable and accrued liabilities 1,953
-------
Total current liabilities 17,684
-------
COMMITMENTS AND CONTINGENCIES (see Notes)
STOCKHOLDER'S EQUITY:
Common stock, no par value, 1,000 shares
authorized, 100 shares issued and
outstanding -
Additional paid-in capital 65,466
Accumulated deficit (3,234)
-------
Total stockholder's equity 62,232
-------
$ 79,916
=======
The accompanying notes are an integral part of this balance sheet.
GRAND PALAIS RIVERBOAT, INC.
(DEBTOR-IN-POSSESSION)
STATEMENTS OF OPERATIONS
(in thousands)
Period from
Inception
(March 29, Years Ended
1993) to December 31,
December 31, --------------------------
1993 1994 1995
------------ ------------ ------------
REVENUES:
Casino $ - $ - $ 9,452
Food and beverage and other - - 327
-------- -------- --------
Gross revenues - - 9,779
Less: promotional allowances - - (344)
-------- -------- --------
Net revenues - - 9,435
-------- -------- --------
OPERATING EXPENSES:
Casino - - 5,918
Gaming taxes and other - - 3,090
Pre-opening - 2,594 2,479
Depreciation and amortization - - 1,699
Vessel operations and other - - 2,320
Joint venture expenses - 2,324 44,945
Reorganization items - - 20,169
-------- -------- --------
Total operating expenses - 4,918 80,620
-------- -------- --------
LOSS FROM OPERATIONS - (4,918) (71,185)
OTHER INCOME (EXPENSE):
Interest income 41 1,643 109
Interest expense - - (668)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 41 (3,275) (71,744)
Provision for income taxes - - -
-------- -------- --------
NET INCOME (LOSS) $ 41 $ (3,275) $ (71,744)
======== ======== ========
The accompanying notes are an integral part of these statements.
<TABLE>
GRAND PALAIS RIVERBOAT, INC.
(DEBTOR-IN-POSSESSION)
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM INCEPTION (MARCH 29, 1993) TO DECEMBER 31, 1993
AND FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
(in thousands, except number of shares)
<CAPTION>
Common Stock Additional Accumulated
------------------------- Paid-in Earnings
Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCEPTION, March 29, 1993 - $ - $ - $ - $ -
Issuance of common stock 100 - - - -
Capital contributions from parent - - 79,200 - 79,200
Issuance of warrants to purchase common
stock of parent - - 1,266 - 1,266
Net income during development stage - - - 41 41
--- -------- -------- -------- --------
BALANCES, December 31, 1993 100 - 80,466 41 80,507
Distribution to parent - - (15,000) - (15,000)
Net loss during development stage - - - (3,275) (3,275)
--- -------- -------- -------- --------
BALANCES, December 31, 1994 100 - 65,466 (3,234) 62,232
Capital contributions from parent - - 9,270 - 9,270
Net loss - - - (71,744) (71,744)
--- -------- -------- -------- --------
BALANCES, December 31, 1995 (Before adoption
of liquidation basis of accounting) 100 $ - $ 74,736 $(74,978) $ (242)
=== ======== ======== -------- ========
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
GRAND PALAIS RIVERBOAT, INC.
(DEBTOR-IN-POSSESSION)
STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Period from
Inception
(March 29, Years Ended
1993) to December 31,
December 31, --------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 41 $ (3,275) $ (71,744)
--------- --------- ---------
Adjustments to reconcile net income (loss)
to net cash provided by development
stage and operating activities-
Depreciation and amortization - - 1,699
Joint venture expenses - 2,324 44,945
Reorganization items - - 20,169
Increase in prepaid expenses and other - (103) (18)
Increase in accounts payable, accrued
liabilities and liabilities subject
to compromise - 1,953 10,868
--------- --------- ---------
Total adjustments - 4,174 77,662
--------- --------- ---------
Net cash provided by development
stage and operating activities 41 899 5,918
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net restricted funds (placed in) disbursed
form escrow (68,700) 54,260 14,440
Expenditures for predevelopment costs (11,288) (3,305) -
Purchases of property and equipment - (28,466) (10,359)
Investment in joint venture - (20,215) (16,527)
(Increase) decrease in affiliate advances 751 1,109 (6,392)
--------- --------- ---------
Net cash (used in) provided by investing
activities (79,237) (3,383) (18,838)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 7,551 13,048 32
Principal payments on notes payable (7,551) - (200)
Proceeds from debtor-in-possession financing - - 1,484
Capital contributions from parent 79,200 - 9,270
Distribution to parent - (15,000) -
--------- --------- ---------
Net cash provided by (used in) financing
activities 79,200 (1,952) 10,586
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 4 2,330 (2,334)
CASH AND CASH EQUIVALENTS, at beginning
of period - 4 2,334
--------- --------- ---------
CASH AND CASH EQUIVALENTS, at end
of period $ 4 $ 2,334 $ -
========= ========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
GRAND PALAIS RIVERBOAT, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
(1) ORGANIZATION, PLAN OF REORGANIZATION
AND BASIS OF PRESENTATION
Organization
The accompanying financial statements include the accounts of Grand
Palais Riverboat, Inc. (the "Company" or "GPRI"), a Louisiana
corporation incorporated in March, 1993. Pursuant to a restructuring
of certain entities under common control, on December 17, 1993, the
Company became a wholly owned subsidiary of Hemmeter Enterprises, Inc.
("HEI"), a Delaware corporation. Prior to this date the Company was a
wholly owned subsidiary of Grand Palais Enterprises, Inc. ("GPEI").
Pursuant to the restructuring, the Company's stockholders and warrant
holders received common stock and warrants to purchase shares of an
equivalent amount of common stock of HEI.
The Company was formed to design, develop, operate and own a riverboat
gaming facility on the Mississippi River in New Orleans ("Riverboat
Project"). In June 1994, the Company entered into a joint venture,
the River City Joint Venture ("RCJV"), with Crescent City Capital
Development ("CCCD"), an affiliate of Capital Gaming International,
Inc. RCJV is a Louisiana general partnership in which each partner
has a 50% interest. The Company was in the development stage as of
December 31, 1994, as its principal operations had not yet commenced.
The development stage activities through December 31, 1994 related to
negotiating various agreements to develop the joint venture,
construction of the riverboat casino, the RCJV facility and financing
activities.
The Company and CCCD each operated separate gaming riverboats which
commenced operations on March 29, 1995 and April 3, 1995,
respectively. RCJV operated an entertainment and docking facility for
the two riverboats, with parking, dining entertainment facilities and
other amenities. The operations of these two riverboats were
coordinated pursuant to an Administrative Services and Consulting
Agreement between each partner and RCJV (Note 9) in which RCJV was to
provide management, marketing, human resources, accounting and other
support activities for the benefit of both riverboats.
The Riverboat Project incurred construction cost overruns and had
substantial operating losses as a result of the failure of the New
Orleans gaming market to develop as anticipated and the resulting
failure of the Riverboat Project to achieve projected revenues. As a
result, the Company and CCCD terminated riverboat gaming operations on
June 6, 1995 and June 9, 1995, respectively. On July 26, 1995,
certain creditors filed an involuntary petition under Chapter 11 of
the Federal Bankruptcy Code against the Company, CCCD and RCJV. On
July 27, 1995, the Company converted its petition to a voluntary
petition under Chapter 11 of the Federal Bankruptcy Code in the United
States Bankruptcy Court for the Eastern District of Louisiana (the
"Court"). The Court allowed the Company to operate as a debtor-in-
possession, although the business of the Company has not operated
since June 6, 1995. The Court also approved the Company's entering
into certain debtor-in-possession financing facilities (Note 5). As
discussed further in Note 5, the financial difficulties with respect
to the Company resulted in HEI filing for Chapter 11 bankruptcy
protection in November 1995.
Following termination of operations, Company management began
assessing the possibility that all or part of the Riverboat Project
could be sold to another gaming operator. After evaluation and
negotiation of potential transactions, HEI, the Company and certain
creditors entered into a letter of intent with Casino America, Inc.
("Casino America Agreement"). Generally, the Casino America Agreement
provides for the purchase by Casino America, Inc. ("Casino America")
of 100% of the newly issued shares of common stock of a "Reorganized
GPRI". The stated closing date of the sale is April 15, 1996;
however, a thirty day extension may be granted by either party to the
sale. The terms of the sale are outlined below.
CCCD has also negotiated a sale of its riverboat and license but, as
of April 11, 1996, does not have a confirmed plan of reorganization.
There is pending litigation between CCCD and GPRI as a result of the
financial difficulties of RCJV (Note 8.)
Plan of Reorganization
On March 29, 1996, the Court confirmed the Company's Chapter 11 Plan
of Reorganization and Disclosure Statement (as amended, the "Plan").
The Plan is effective upon completion of certain required conditions,
including, among other items, regulatory approval of the transfer of
the gaming license to Casino America (see Note 8) and certain other
administrative items. If the sale contemplated by the Plan does not
close, the order confirming the Plan will be rescinded. In general
the Plan provides for resolution of all claims against the Company, as
well as resolution of certain legal disputes, and provides for
distributions to creditors of (1) cash, (2) new debt securities, (3)
shares of common stock of Casino America and (4) warrants to purchase
shares of common stock of Casino America, as follows:
Bank Debt - The Company's bank debt, which includes the Riverboat
Construction Facility (Note 5), the Company's fifty percent interest
in the RCJV bank debt and certain DIP facilities (Note 5), plus all
unpaid interest, costs and attorney's fees will be settled through
issuance of a new note by Casino America on the effective date. The
new note, for the lesser of $16,500,000 or the sum of the stated
obligations on the effective date, will bear interest at prime plus
one percent and will mature in five years.
Priority Tax Claims -Priority tax claims, in an amount not to
exceed $1,000,000, will be paid through the issuance of a note (not to
exceed $1,000,000) by Casino America, payable over six years at the
legal rate of interest.
Maritime Claims - Maritime claims (claims arising in connection with
a preferred maritime lien on the riverboat) will be settled through
payments of cash of $250,000 and a note payable from Casino America in
an amount not to exceed $750,000,
Warn Act Claims - In connection with the closing of the riverboat
operations, the Company terminated substantially all of its workforce
numbering approximately 500 employees, and RCJV terminated
substantially all of its employees. Certain of the employees filed
claims under the Federal Worker Adjustment and Refinancing
Notification Act ("WARN Act"). Warn Act claims will be settled
through cash payments of $250,000 and the issuance of a note by Casino
America in the amount of $750,000, payable over 36 months bearing
interest at 6%.
DIP financing - The Plan calls for Casino America to retire other
DIP financing (see Note 5) in an amount not to exceed $870,000 through
the payment of cash in the amount of the obligation through the
effective date. In addition, Casino America will forgive its DIP
obligations as of the effective date.
Equipment Financing - Obligations to certain equipment vendors will
be settled through the issuance of notes totaling $8,915,110 to the
respective vendors by Casino America. The notes will bear interest at
prime plus 1%, with varying maturities of 18 to 36 months.
Senior Noteholder Claims and RII Claims - As discussed in Note 5,
a significant portion of the Company's assets secured HEI's Senior
Secured Notes. In addition, the Company guaranteed certain other
obligations of HEI to Resort Income Investors ("RII"). Obligations
under these liabilities will be settled through issuance of 2,250,000
shares of Casino America common stock (value of $15,469,000 as of the
confirmation date) and warrants to purchase an additional 500,000
shares of Casino America common stock at an exercise price of $10 per
share, which exceeds the market price of the stock on the date of
confirmation. The warrants are exercisable for a five year period;
however, if during the year following the effective date gaming
legislation or regulation is passed which would prohibit cruising or
dockside gaming in Lake Charles, Louisiana, the exercise price will
increase to $18 per share on the first anniversary of the effective
date.
Dock Board Secured Escrow Claims - All secured obligations to the
Dock Board of New Orleans (Note 9) will be settled through release of
an escrow account in the amount of $2,241,000. This escrow account
has been fully reserved in the accompanying financial statements.
Amounts included in this escrow as of December 31, 1994 are included
in other assets. There are additional claims by the Dock Board which
will be settled with the general unsecured claims in a pro rata
manner.
General Unsecured Claims - The holders of trade and other
miscellaneous claims will receive cash in the amount of $2,000,000 and
a $10,000,000 note from Casino America, bearing interest at 6% and
payable over 36 months. The note requires a $1 million principal
reduction within 180 days of regulatory approval to operate the boat.
In addition, fifty percent of the remaining principal balance is
required to be repaid upon successful completion of a debt or equity
offering by Casino America. The Company's share of RCJV's unsecured
claims are included in this class.
The Plan also calls for Casino America to pay cash in the amount of
$2.2 million to the bankruptcy disbursing agent to pay administrative
fees and expenses of completing the Plan. Administrative expenses of
approximately $1.1 million have been incurred as of December 31, 1995
and are included in accounts payable and accrued liabilities in the
accompanying financial statements. The Plan provides for no
distributions to be made to HEI for its current stock ownership of the
Company.
On the effective date of the Plan, title to all property of the
Company will be transferred to a Reorganized GPRI free and clear of
all claims and interests. Also on the effective date, Casino America
will issue all of the cash and notes discussed above, and in exchange
will receive 100% of the common stock of Reorganized GPRI. All
existing equity interests in the Company will be extinguished on that
date. The value of the assets recorded in the accompanying financial
statements approximate the fair value of the assets based on the sale
price to Casino America.
Liabilities Subject to Compromise
Pursuant to the Chapter 11 proceedings, certain secured and unsecured
claims against the Company in existence prior to the filing of the
petition for relief under the Federal Bankruptcy Code were stayed
while the Company pursued consummation of the Plan. The stayed claims
which may be "impaired" under the Plan are reflected in the
accompanying December 31, 1995, statement of net assets in liquidation
as "liabilities subject to compromise." The amount recorded as
liabilities subject to compromise approximates the amounts approved by
the Court in the Plan.
Liabilities subject to compromise consist of the following:
December 31, 1995
(in thousands)
Secured note payable to a bank $13,791
Notes payable to equipment vendors 11,035
Guarantee of HEI Senior Secured Notes (Note 5) 15,469
Other claims and accrued liabilities 15,198
Total $55,493
======
Liabilities Not Subject to Compromise
Liabilities not subject to compromise consist primarily of priority
tax claims. The recorded amounts approximate the amounts approved by
the Court in the Plan.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Liquidation Basis of Accounting
As a result of the confirmed Plan discussed in Note 1, effective
December 31, 1995, the Company adopted the liquidation basis of
accounting. Accordingly, the remaining assets as of December 31, 1995
are presented at estimated realizable values, based on the sale to
Casino America (Note 1) and all liabilities have been valued in
accordance with the Plan. If the Plan is not completed as
contemplated, actual amounts may differ from these estimates (Note 8).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents are highly-liquid investments with an
original maturity of less than three months and are stated at cost
which approximates market value.
Deposits
The Company had placed deposits on certain equipment and services not
received as of December 31, 1994. These amounts have been recorded as
deposits in the accompanying balance sheets and were capitalized as
property and equipment or expensed, as appropriate, in 1995 when the
related items were received.
Property and Equipment
Property and equipment are recorded at cost. At December 31, 1994,
property and equipment consisted of construction in progress with no
depreciation expense recorded. Depreciation and amortization were
computed using the straight-line method over the estimated useful
lives of the assets (15 years for the riverboat and improvements and
3-7 years for gaming equipment, furniture and fixtures) beginning in
March 1995, when the assets were placed in service. Costs of major
improvements were capitalized; costs of normal repairs and maintenance
were charged to expense as incurred. The Company discontinued
depreciating its property and equipment, effective July 1995, as a
result of the terminated riverboat operations.
The Company capitalized interest costs associated with debt incurred
in connection with construction in progress. Interest capitalized
through December 31, 1994 and 1995 was approximately $168,000 and
$321,000, respectively. In addition, the Company capitalized
financing costs in the amount of $282,000 associated with this debt.
Also included in property and equipment at December 31, 1994 is
capitalized debt discount in the amount of $1,266,000. All previously
capitalized interest, financing costs and debt discounts are included
in net assets held for sale, which has been written down to the net
realizable value. See Reorganization and Impairment of Assets Items.
Other Assets
Costs incurred in the Company's pursuit, application and awarding of
its initial gaming license, primarily consisting of consulting fees as
further discussed in Note 7 were being amortized over the five-year
term of the initial Louisiana gaming license beginning in March 1995.
The Company also capitalized a $7.6 million deposit paid to the Board
of Commissioners of the Port of New Orleans (the "Dock Board")
pursuant to the Berthing Infrastructure Reimbursement Agreement
("BIRA") between the Company and the Dock Board (Note 9). Other
assets, at December 31, 1994, also includes approximately $5.8 million
of other predevelopment costs incurred during the pursuit of the
Riverboat Project which were allocated proportionately to the fixed
asset accounts upon commencement of gaming operations in March 1995.
As of December 31, 1995, in connection with the reorganization, the
unamortized balance of gaming license fees totaling $2.8 million and
the Dock Board deposit totaling $7.1 million were expensed as
reorganization items.
Casino Revenues and Promotional Allowances
In accordance with industry practice, during the period of operation,
the Company recognized as casino revenues the net win from gaming
activities, which is the difference between gaming wins and losses.
The retail value of food and beverage furnished to customers on a
complimentary basis is included in gross revenues and then deducted as
promotional allowances.
Pre-opening Costs
The Company expensed pre-opening costs as incurred. Pre-opening costs
consisted of expenditures incurred prior to the opening of the casino
to prepare the casino for business and included labor costs, certain
consulting, marketing and other direct costs.
Reorganization and Impairment of Asset Items
Reorganization items are segregated from normal operations in the
December 31, 1995 statement of Operations and reflect the costs
incurred associated with the reorganization of the Company.
Based on management's evaluations and the terms of the confirmed Plan,
the following asset writedowns and reorganization items/reserves,
respectively, were recorded in the accompanying statement of
Operations for the year ended December 31, 1995:
Reorganization
Items/Reserves
--------------
Write-off of property and equipment $ 935
Write-off of license fee 2,785
Write-off of Dock Board deposits 7,101
Write-off of due to/from affiliates 4,532
Litigation settlements 3,084
Other reorganization Items:
Professional fees 1,110
Interest expense 622
-------
$ 20,169
=======
(3) RESTRICTED FUNDS IN ESCROW
In December 1993, HEI completed a private offering of $140 million
aggregate principal of Senior Secured Pay-In-Kind Notes (the "Notes")
(Note 5) and contributed $79.2 million of the proceeds to the Company
to be used in the development of the Riverboat Project. Of the $79.2
million contributed, $9 million was used to repay loans from GPCI
(Note 7) and the remainder was placed in an escrow account pursuant to
the terms of the Disbursement Agreement entered in connection with the
issuance of the Notes. Disbursements from the escrow account were
managed by an independent trustee and disbursement agent who
administered requests for disbursements pursuant to the Disbursement
Agreement. Although the Company did not submit all documentation as
required by the Disbursement Agreement, the Escrow Agent released all
funds to the Company. Management does not believe this to be a
material violation of the Disbursement Agreement. Total deposits to
the escrow account were $70.2 million of which $1.5 million and
$55.8 million had been disbursed as of December 31, 1993 and 1994,
respectively, including $15 million which was distributed back to HEI
in 1994 upon the occurrence of certain events allowed by the Notes
Indenture. The remaining funds were disbursed in 1995 towards
completion of the Riverboat Project. Funds held in this account
served as collateral for the Notes.
(4) INVESTMENT IN RIVER CITY JOINT VENTURE
As discussed in Note 1, the Company is a fifty percent joint venture
partner in RCJV, a general partnership formed to develop, own and
operate a common entertainment and docking facility from which the
Company's and CCCD's riverboats operated. The Company accounted for
its investment in RCJV under the equity method.
Operations of the RCJV facility were terminated in June 1995 in
connection with the termination of operations of the joint venture
partners' riverboats. In July 1995, certain creditors of the
Riverboat Project filed an involuntary petition under Chapter 11 of
the Federal Bankruptcy Code against RCJV. In March 1996, the
involuntary Chapter 11 proceeding against RCJV was dismissed. The
Company and CCCD continue to maintain the assets of RCJV until an
orderly liquidation can take place.
Joint venture expenses include the Company's share of the losses of
RCJV. These losses include significant charges recorded in 1995 to
reduce the carrying amount of the RCJV assets to their estimated net
realizable value. In determining the amount of the write-down,
management considered such factors as the poor performance of the New
Orleans gaming market as a whole, the poor marketability of the
entertainment and docking facility to other potential gaming companies
with which the Company and CCCD were negotiating, and that all or
substantially all the RCJV's assets are real property or improvements
to real property securing a $22.5 million first mortgage position from
a lender.
Pursuant to the Plan, GPRI's 50% joint venture interest will not be
included in the assets of the Reorganized GPRI. Accordingly, the
Investment in RCJV was reduced to zero through joint venture expenses
recognized in 1995. The Plan provides for the settlement of certain
RCJV obligations; all of these obligations have been recorded as joint
venture expenses in accordance with the Plan and are included in
"liabilities subject to compromise" as of December 31, 1995. Upon
execution of the Plan, the Company's interest in RCJV will be
transferred to the Litigation Trust, which will be funded out of
recoveries or excess reserves, if any. This trust will oversee RCJV's
liquidation, and the Company and HEI will have no further obligations
or ownership with respect to RCJV. Any proceeds remaining in this
trust will be distributed to the general unsecured creditors and the
senior secured noteholders, as stipulated by the Plan.
(5) NOTES PAYABLE
Debtor-in-Possession Financing
After commencement of bankruptcy proceedings, the Court approved a
series of debtor-in-possession financing agreements ("DIP Facilities")
with two unaffiliated third parties (bank and other). The DIP
Facilities were intended to provide the Company with adequate
financing for preservation of Company and RCJV assets and for allowed
administrative claims during the bankruptcy proceedings. The DIP
Facilities are secured by a security interest in the Company's assets,
including its riverboat. In addition, borrowings under the DIP
Facilities constitute Allowed Superiority Administrative Expense
Claims, and, therefore, will be repaid on a priority basis from the
consideration provided by Casino America under the Plan.
Borrowings under the bank and other DIP Facilities totaled $660,963
and $773,300, respectively, at December 31, 1995. Interest on these
borrowings, approximately $50,000 at December 31, 1995, accrues at
prime plus 1%, and LIBOR plus 3%, respectively, and is due at
maturity.
No further borrowings are being made under the first two DIP
Facilities upon the Company securing the third DIP Facility pursuant
to the Casino America Agreement in December 1995 ("Casino America DIP
Facility"). Borrowings under the Casino America DIP Facility began in
January 1996 and accrue interest at 9.25%. In connection with the
Plan becoming effective, these borrowings will be forgiven by Casino
America.
Riverboat Construction Facility
In 1994, the Company obtained a credit facility from a Bank in the
amount of $15 million to fund a portion of the construction of the
riverboat. The loan accrued interest at the Bank's prime lending rate
plus one percent and was secured by a first preferred ship mortgage on
the riverboat being constructed. In addition, certain subsidiaries of
HEI are guarantors under the credit facility. As of December 31, 1994,
$13 million was outstanding under this line of credit and is included
in current liabilities in the accompanying 1994 balance sheet. The
loan matured April 24, 1995.
In 1995, the Company anticipated repaying the credit facility with
proceeds from permanent financing to be provided by an unaffiliated
third party. However, such permanent financing could not be obtained
and the Company was unable to repay the credit facility. Accordingly,
on April 24, 1995, the Company extended this facility to July 24, 1995
with an increase in the interest rate to prime plus 3%. However, the
Company did not meet all requirements under this extension and on July
27, 1995 the credit facility began accruing interest at a default rate
of prime plus 7%. In connection with the Plan, the Bank agreed to
forego the interest based on the penalty rate, and will collect
interest based on the contractual rate of prime plus 1% through April
24, 1995, and prime plus 3% for the period from April 25, 1995 through
December 31, 1995. The principal amount of the credit facility ($12.9
million) plus accrued and unpaid interest at the contractual rate,
($910,000) total $13.8 million which is included in "liabilities
subject to compromise" in the accompanying 1995 statement of net
assets in liquidation.
Guarantee of HEI Debt
On December 21, 1993, HEI completed a private offering of the Notes,
the net proceeds of which, after deducting the commissions and other
offering expenses, were approximately $131 million. The net proceeds
were used to repay indebtedness of HEI as well as to establish escrow
funds for the purpose of constructing the Riverboat Project (Note 3).
The Notes are reflected as liabilities in the consolidated financial
statements of HEI. Substantially all of the Company's assets,
including the Company's interest in RCJV, and excluding gaming
equipment, are pledged as security for the Notes. As of December 31,
1995, the total amount outstanding under the Notes, including accrued
and unpaid interest totaled $174.3 million.
As a result of the financial difficulties of the Company and certain
other related events, HEI was declared to be in default under the
terms of the Indenture covering the Notes. HEI immediately entered
into negotiations with certain of the holders of the Notes to
restructure the Notes. On November 7, 1995, HEI and three of its
other wholly owned subsidiaries filed a voluntary Chapter 11 petition
in the United States Bankruptcy Court for the District of Delaware.
The Chapter 11 case subsequently was transferred to the Court. On
February 12, 1996, a plan of reorganization (the "HEI Plan") was filed
in the HEI bankruptcy case. The holders of the Notes have filed
claims against the Company regarding HEI's default under the Notes
Indenture. As discussed in Note 1, the Plan provides for settlement
of the guarantee through the issuance of common stock and warrants to
purchase common stock of Casino America. The Company has recorded
this liability ($15,469,000) at the value of the Casino America stock,
as of March 29, 1996, the date the Court approved the Plan. No value
was assigned to the warrants. Under the HEI Plan, the Company will
have no further obligations with respect to the Notes.
In June of 1994, RCJV made the decision to relocate the riverboat
project to a new location. HEI sought and received approval from the
holders of the Notes to relocate and in consideration for bondholder
consent, the Company paid a fee of of one percent of the principal
amount held by each consenting bondholder. These fees totaled
approximately $635,000 and were included in pre-opening expense as of
December 31, 1994.
(6) INCOME TAXES
The Company had no income tax provision in 1994 and 1995 due to the
Company's significant loss position. The Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109") in December 1993. SFAS 109 requires recognition of
deferred income tax assets and liabilities based on enacted tax laws
for any temporary differences between financial reporting and tax
basis of assets, liabilities and carryforwards. Deferred taxes are
then reduced, if deemed necessary, by a valuation allowance for the
amount of any tax benefits which, based on management's opinion, are
not expected to be realized. The net deferred tax assets and
liabilities as of December 31, 1994 and 1995 are comprised as follows:
December 31
----------------------
1994 1995
--------- ---------
Accelerrated depreciation for tax $ 929 $ 2,610
Start up costs/intangibles
capitalized for tax 1,038 -
Impairment of assets - 3,267
Net operating loss carryforwards - 3,146
------- -------
Net deferred tax asset 1,967 29,023
Valuation allowance (1,967) (29,023)
------- -------
$ - $ -
======= =======
The net deferred tax asset valuation allowance is equal to the full
amount of the deferred tax asset because the realization of such asset
is dependent upon future taxable income, which is uncertain. The
Company has net operating loss carryforwards totaling $58 million ,
which expire beginning in 2110.
The Company's Plan provides for the new common stock in a Reorganized
GPRI to be issued to Casino America, which will result in a "change of
ownership" under Section 382 of the Code. As a result, total usage of
the Company's net operating loss carryforwards will be limited. In
addition, deferred deductions indicated above that become deductible
for tax purposes during the five-year period following the effective
date of the Plan are also subject to the annual limitation. Net
operating loss carryforwards and future deductions exceeding the
annual limitations will expire unused.
(7) RELATED PARTY TRANSACTIONS
Advances to/from Affiliates
The Company has advanced and borrowed funds to and from certain
affiliates. Such funds advanced from affiliates were approximately
$751,000 and $2.7 million, respectively, at December 31, 1994 and
1995. Funds advanced to affiliates were approximately $958,000 and
$7.2 million, respectively, at December 31, 1994 and 1995. Theses
advances have no stated repayment terms and are non-interest bearing.
The amount due to affiliates in 1995 represents a payable to HEI. The
Plan does not contemplate any payment to affiliates, accordingly ,
this liability has been reduced to zero. Of the amount due from
affiliates, $5.5 million relates to RCJV and $1.7 million is due from
the Company's joint venture partner, CCCD. Because of the
deterioration of the financial condition of the affiliates to which
the Company has advanced funds, the Company has determined that it is
unlikely that it will collect any of the advances to affiliates and,
accordingly, has expensed the entire amount owed the Company. This
reserve is reflected as a reorganization cost in the accompanying
statements of operations. The Company will continue to pursue
collection of the advances to affiliates if it determines any value
will be recoverable.
Consulting Agreement
The Company was party to a consulting agreement whereby the consultant
was entitled to receive an ownership interest in the Company and a $3
million fee in exchange for the consultant's assistance in obtaining
necessary licensing and other regulatory approvals with respect to the
Riverboat Project. Pursuant to this agreement, the consultant's right
to receive an ownership interest was converted into 1,605,739 warrants
to purchase common stock of HEI in connection with the reorganization
in 1993. The $3 million fee was paid to the consultant in 1994. In
addition, the consultant was paid an initial consulting fee of $2.8
million for his services with respect to the riverboat and to an
affiliate's project, of which $280,000 was allocated to the Company.
These fees have been capitalized as licensing costs to be amortized
over the initial five-year term of the riverboat license. All
licensing costs were charged to reorganization costs in the
accompanying statement of operations in 1995.
In October, 1994, RCJV entered into a consulting agreement with a
stockholder of HEI for general business, legal and legislative
analysis services. The contract provides for annual compensation of
$500,000 plus life and health insurance benefits. The contract runs
for an indefinite period of time but may be terminated by RCJV with at
least five years notice. If terminated for any reason other than
death, without such notice, a severance benefit in the amount of
$1,250,000 would be required. This contract was rejected as part of
the bankruptcy proceedings.
Transactions with GPCI
In 1992 and 1993, Grand Palais Casino, Inc. ("GPCI") undertook a
private offering of senior secured exchangeable notes. Certain of
HEI's stockholders are also stockholders of GPCI's parent company,
GPEI. In September 1993, $7.6 million of the net proceeds of GPCI's
private offering were loaned to the Company. The loan was evidenced
by a demand note (Note 6) payable to GPCI and accrued interest at 12%.
The loan was repaid with proceeds from the HEI note offering in
December 1993. As additional consideration, the GPCI noteholders were
to be issued warrants to purchase one share of the Company's common
stock at $.01 per warrant. In connection with the December 1993
restructuring, the GPCI noteholders were issued warrants to purchase
2,980,986 shares of common stock of HEI. These warrants were valued
at $1.3 million, which amount was offset against the $7.6 million
demand note and amortized as interest costs, which were then
capitalized as property and equipment.
During 1993, GPCI advanced other funds to the Company totaling $2.2
million, which accrued interest at 12% and were unsecured. Proceeds
from the Notes were used to repay $1.7 million of the advances in
1993. The remaining $490,000 was repaid in 1994.
Transactions with Directors
The Company paid $0, $463,000 and $70,000 to the law firm of Shefsky
Froelich & Devine Ltd. for legal services rendered to the Company in
1993, 1994 and 1995, respectively. Cezar M. Froelich, a director of
the Company and director and owner of 1.4% of HEI on a fully diluted
basis, is a member of that firm. Shefsky Froelich & Devine Ltd.
provided legal services to the Company until February 9, 1996. Any
further payments to Shefsky Froelich & Devine Ltd., are subject to
Court approval.
(8) COMMITMENTS AND CONTINGENCIES
Litigation and Contingencies
As discussed in Note 1, completion of the Plan is contingent upon one
regulatory approval. The Louisiana State Police, which governs the
issuance of riverboat casino operating licenses, is currently
investigating the suitability of Casino America. This investigation
must be successfully completed prior to transfer of the license. The
value of the assets of GPRI will be significantly less than as
reflected in the accompanying financial statements, if the riverboat
casino operating license is not included as a transferable asset.
Management of the Company believes that the required approval to
transfer the license will be obtained.
As of April 11, 1996 the Louisiana State Legislature was in a special
session in which one of the significant issues being addressed was a
public referendum on allowing continued gaming operations in
Louisiana. The outcome of any legislation approved will not impact
completion of the sale to Casino America.
As of April 11, 1996, the Louisiana State Police are conducting a
casino revenue audit. No significant changes are expected as a result
of this audit.
The Company adheres to SFAS No. 5 concerning the recording of
liabilities for pending litigation. The Plan, as confirmed, settles
all liabilities for pending litigation and other contingencies.
(9) SIGNIFICANT AGREEMENTS
Administrative Services and Consulting Agreements
The Company had an Administrative Services and Consulting Agreement
with RCJV pursuant to which RCJV provided all non-gaming operational
services required to own and operate the Company's riverboat,
including, but not limited to security (but no surveillance), food and
beverage service, janitorial services, and accounting and payroll
administration. The Company reimbursed RCJV for its share of actual
costs of providing such services, inclusive of overhead and employee
salaries.
Berthing and Terminal Lease Agreements
In 1993, the Company and CCCD selected a riverboat site and entered
into negotiations with the Dock Board for a lease of that site. The
Dock Board required a $7.6 million payment from each partner, which
funds were to be used by the Dock Board to make improvements to the
riverboat dock site for the benefit of the River City Joint Venture
partners. Disbursements of these funds were to be made pursuant to
the BIRA. In June, 1994, RCJV made the decision to relocate the
Riverboat Project to a new location and negotiated new lease
agreements with the Dock Board which were executed subsequent to
December 31, 1994. Under the terms of the lease agreements, the
Company was required to maintain a security deposit with the Dock
Board in the amount of $2.5 million in the form of either cash or a
letter of credit. During the initial twenty-seven months of the
agreements, the deposit made under the BIRA was to serve as security
for both the berthing and the terminal leases. The $7.6 million was
to be refunded to the Company over the initial ten-year term of the
lease, subject to continuance of the agreement. Accordingly, this
amount was capitalized as an other asset as of December 31, 1994.
Because of the termination of riverboat operations, the refunding of
this deposit ceased. As of December 31, 1995, the Company had been
refunded $500,000 of the Dock Board payment. In 1995, the remaining
amount was written off as impairment of assets, as the Company has
determined that it is unlikely that it will receive any additional
refunds of the Dock Board payment.
The Company leased berthing space for its riverboat from the Dock
Board and was required to pay, for the first three months of each
year, the greater of (x) $2.50 per passenger, or (y) a sliding
percentage of the gross revenues from gaming operations (the
"Percentage Formula"). The payment for the remaining nine months of
each year was based upon the Percentage Formula. The Company also
guaranteed the Dock Board minimum payments of $2.5 million per year
under the Berthing Agreement. Finally, the Company was obligated to
contribute toward the cost of the Dock Board's police and fire
protection services. This charge was to be approximately $346,000 in
the first year. In addition, pursuant to a Terminal and Use
Agreement, River City Joint Venture was required to pay as rent
$400,000 per year to the Dock Board. Both the Berthing Agreement and
Terminal and Use Agreement were for an initial term of 10 years, with
renewal options which would result in a total term of 50 years. As a
result of the termination of riverboat operations, the Company and
RCJV ceased payments under the berthing and terminal leases. Total
payments by the Company were $223,000 for 1995 and are included in
gaming taxes and other in the accompanying statements of operations.
All obligations to the Dock Board are being settled through the
Company's confirmed Plan.
