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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_________
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-22436
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Delaware Lady Luck Gaming Corporation 88-0295602
(State or other jurisdiction of (Exact name of Registrant as specified in its charter) (I.R.S. employer
incorporation or organization) identification number)
Delaware Lady Luck Gaming Finance Corporation 88-0295603
(State or other jurisdiction of (Exact name of Registrant as specified in its charter) (I.R.S. employer
incorporation or organization) identification number)
Mississippi Lady Luck Tunica, Inc. 88-0289742
(State or other jurisdiction of (Exact name of Registrant as specified in its charter) (I.R.S. employer
incorporation or organization) identification number)
Mississippi Lady Luck Biloxi, Inc. 88-0285242
(State or other jurisdiction of (Exact name of Registrant as specified in its charter) (I.R.S. employer
incorporation or organization) identification number)
Delaware Gold Coin Incorporated 88-1223906
(State or other jurisdiction of (Exact name of Registrant as specified in its charter) (I.R.S. employer
incorporation or organization) identification number)
Mississippi Magnolia Lady, Inc. 88-0301634
(State or other jurisdiction of (Exact name of Registrant as specified in its charter) (I.R.S. employer
incorporation or organization) identification number)
Mississippi Old River Development, Inc. 64-0837159
(State or other jurisdiction of (Exact name of Registrant as specified in its charter) (I.R.S. employer
incorporation or organization) identification number)
Missouri Lady Luck Kimmswick, Inc. 43-1653661
(State or other jurisdiction of (Exact name of Registrant as specified in its charter) (I.R.S. employer
incorporation or organization) identification number)
Delaware Lady Luck Quad Cities, Inc. 42-1426966
(State or other jurisdiction of (Exact name of Registrant as specified in its charter) (I.R.S. employer
incorporation or organization) identification number)
Mississippi Lady Luck Mississippi, Inc. 88-0277687
(State or other jurisdiction of (Exact name of Registrant as specified in its charter) (I.R.S. employer
incorporation or organization) identification number)
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Mississippi Lady Luck Vicksburg, Inc. 88-0284406
(State or other jurisdiction of (Exact name of Registrant as specified in its charter) (I.R.S. employer
incorporation or organization) identification number)
Mississippi Lady Luck Gulfport, Inc. 88-0289741
(State or other jurisdiction of (Exact name of Registrant as specified in its charter) (I.R.S. employer
incorporation or organization) identification number)
206 North Third Street, Las Vegas, Nevada 89101
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including
area code: (702) 477-3000
__________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock of Lady Luck Gaming Corporation ($.001 par value)
(Title of class)
__________
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of each registrant's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
At March 13, 1997, the aggregate market value of the registrant, Lady Luck Gaming Corporation's, Common Stock,
$.001 par value, held by non-affiliates was approximately $28,803,875.
At March 13, 1997, 29,285,698 shares of the registrant, Lady Luck Gaming Corporation's, Common Stock, $.001 par
value, were outstanding.
The registrant, Lady Luck Gaming Corporation's, proxy statement for its 1997 Annual Meeting of Shareholders is
incorporated by reference herein into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS.
All statements contained herein that are not historical facts, including
but not limited to statements regarding the Company's current business strategy,
the Company's prospective joint ventures, asset sales and expansions of existing
projects, and the Company's plans for future development and operations, are
based upon current expectations. These statements are forward-looking in nature
and involve a number of risks and uncertainties. Generally, the words
"anticipates," "believes," "estimates," "expects," and similar expressions as
they relate to the Company and its management are intended to identify forward
looking statements. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are the following: the
availability of sufficient capital to finance the Company's business plan on
terms satisfactory to the Company; competitive factors, such as legalization of
gaming in jurisdictions from which the Company draws significant numbers of
patrons and an increase in the number of casinos serving the markets in which
the Company's casinos are located; changes in labor, equipment and capital
costs; the ability of the Company to consummate its contemplated joint ventures
on terms satisfactory to the Company and to obtain necessary regulatory
approvals therefor; changes in regulations affecting the gaming industry; the
ability of the Company to comply with the Indenture as supplemented by the
Amendments and Waivers; future acquisitions or strategic partnerships; general
business and economic conditions; and other factors described from time to time
in the Company's reports filed with the Securities and Exchange Commission. The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which statements are made pursuant to the Private
Litigation Reform Act of 1995 and, as such, speak only as of the date made.
General
Lady Luck Gaming Corporation ("LLGC"), together with its subsidiaries and
directly or indirectly owned affiliates (collectively with LLGC, the "Company"),
develops, owns and operates dockside, land-based and riverboat casinos and
related projects in recently created gaming jurisdictions. The Company currently
owns and operates one dockside casino in each of Natchez, Mississippi ("Lady
Luck Natchez") and Biloxi, Mississippi ("Lady Luck Biloxi"); two dockside,
land-based casinos in Coahoma County, Mississippi ("Lady Luck Rhythm & Blues"
and "Country Casino"); a land-based, limited stakes casino in Central City,
Colorado ("Lady Luck Central City"); and, through a 50% owned joint venture, a
riverboat casino in Bettendorf, Iowa ("Lady Luck Bettendorf"). In addition, the
Company owns 35% of a joint venture, a dockside casino in northern Tunica
County, Mississippi ("Bally's Saloon & Gambling Hall" and together with the
aforementioned casinos, the "Operating Casinos").
The Company also has dockside or riverboat casino projects in various
stages of development in Kimmswick, Missouri (the "Missouri Project") and
Vicksburg, Mississippi (the "Vicksburg Project" and together with the Missouri
Project the "Development Stage Projects"). As of December 31, 1996, the Company
has net remaining investments of $8.4 million and $9.9 million, after any
project development cost write-downs and reserves and other losses to date,
respectively, in the Missouri Project and Vicksburg Project.
The Company is also in the pre-development stage of casino projects in
Scott City, Missouri and Vancouver, British Columbia (collectively, the
"Pre-development Stage Projects"). As of December 31, 1996, the Company has
invested $1.1 million of capital in the Pre-development Stage Projects (which
was expensed in each year as incurred) and does not anticipate investing
additional material amounts of capital prior to licensing.
LLGC is the direct corporate parent of Lady Luck Gaming Finance Corporation
("LLGFC"). The following companies are wholly owned by LLGFC: Lady Luck Tunica,
Inc. ("LLT"), Lady Luck Biloxi, Inc. ("LLB"), the owner of Lady Luck Biloxi,
Gold Coin Incorporated ("GCI"), the owner of Lady Luck Central City, Magnolia
Lady, Inc. ("MLI"), the owner of Lady Luck Rhythm & Blues and Country Casino and
the Pavilion, Lady Luck Quad Cities, Inc. ("LLQC"), which, through a 50% owned
joint venture owns Lady Luck Bettendorf, Lady Luck Mississippi, Inc. ("LLM"),
the owner of Lady Luck Natchez, Lady Luck Vicksburg, Inc. ("LLV"), which is
developing the Vicksburg Project, Lady Luck Gulfport, Inc. ("LLG"), Old River
Development, Inc. ("ORD"), which entered into the Bally's Joint Venture and owns
a 35% interest in the Bally's Saloon & Gambling Hall and L.L. Gaming
Reservations, Inc. ("LLGR"), which books reservations for the Company's hotels.
In addition, LLGFC owns 93% of the capital stock of Lady Luck Kimmswick, Inc.
("LLK"), which has formed a joint venture (the "Kimmswick Joint Venture") to
develop the Missouri Project.
Notwithstanding the impact on operations during the last year from
increased competition in the markets in which the Company operates, management
has continued efforts to increase the revenue producing potential of the
Company's existing assets, expand its facilities, acquire additional amenities
and focus its development efforts.
In an endeavor to service excess demand, defend its market position in
light of the project additions and enhancements planned or under construction at
competing casinos in neighboring Tunica County, Mississippi, and satisfy certain
provisions of its land lease, MLI expanded its casino and non-gaming facilities
during 1996. The expansion project (the "Expansion"), which opened on May 21,
1996, is made up of the "Country Casino" and the "Pavilion." Country Casino
offers approximately 33,000 square feet of casino space, and as of February 28,
1997 had approximately 680 slot machines, including slot machines transferred
from Lady Luck Rhythm & Blues, 18 table games, six poker tables and a food
court. The Pavilion consists of approximately 25,000 square feet of
entertainment and event space, two movie theaters, an arcade and a logo shop. In
addition, the Expansion includes approximately 650 additional parking spaces.
The Expansion was able to utilize equipment having a book value of approximately
$4.0 million that was originally intended to be used in northern Tunica County,
Mississippi and was not contributed to a joint venture with affiliates of
Bally's (the "Bally's Joint Venture"). Additionally, on July 3, 1996, MLI, which
operates Lady Luck Rhythm & Blues, Country Casino and the Pavilion, acquired the
Riverbluff Hotel in Helena, Arkansas (the "Riverbluff"). Casino and
entertainment space of the expanded facility is expected by management to be
adequate to service demand for the foreseeable future. The Riverbluff is located
at the Arkansas entrance to the bridge which crosses the Mississippi River and
provides immediate access to MLI's Coahoma County, Mississippi facilities. The
Riverbluff features 120 guest rooms, adding to the existing 173 guest rooms at
the Coahoma County, Mississippi site.
Seeking to offer a more complete amenity base to patrons of Lady Luck
Natchez in light of competition from four dockside casinos in Vicksburg,
Mississippi, two riverboat casinos in Baton Rouge, Louisiana, and an Indian
casino in Marksville, Louisiana, and fulfill certain requirements of its gaming
license regarding land-based investment, LLM purchased the Best Western River
Park Hotel (the "River Park") from River Park Hotel Group, Inc. on April 15,
1996. The River Park is a 147-room hotel in Natchez, Mississippi. In addition,
the Company has commenced remodeling portions of the River Park, including the
replacement of certain furniture and equipment. The Company expects to spend
approximately $0.2 million in 1997 in addition to amounts expended in 1996 for
this remodeling. In a previous effort to monetize a portion of Lady Luck Natchez
in February 1996, the Company had executed a definitive joint venture agreement
(the "Natchez Agreement") to form a joint venture with Holstar, Inc., a Virginia
corporation ("Holstar"), to own and operate the dockside casino currently
operated by the Company in Natchez, Mississippi and the 125-room Eola Hotel,
owned by Holstar. During 1996, the Company elected to terminate the Natchez
Agreement and not pursue formation of a joint venture. The Company retained
deposits forfeited by Holstar of $0.3 million upon termination. Certain
conditions which had not been met entitled the Company to terminate the Natchez
Agreement at its discretion.
Lady Luck Bettendorf has increased its share of the Quad Cities, Iowa
market from approximately 37% during the period it was open during 1995 to 44%
during 1996. In an effort to further solidify its position within its operating
market, the property has a master plan for expansion which includes, in the
initial phase, a 260-room hotel, a 30 to 100 slip marina, an indoor pool and
fitness center, restaurant facilities, and a fully enclosed walkway to the
riverboat casino. In conjunction with the expansion, the City of Bettendorf,
Iowa would provide various infrastructure improvements including a parking
garage and a traffic overpass. Commencement of the expansion is contingent upon
financing, receipt of required regulatory approvals, and the execution of a
development agreement with the City of Bettendorf. There can be no assurance
that such agreements will be entered into that such approvals will be granted or
that infrastructure improvements will be provided by the City of Bettendorf.
The Company also continues to explore alternatives to improve operations at
Lady Luck Biloxi and previously entered into a non-binding Memorandum of
Understanding with Algernon Blair, Inc. ("ABI"), which provided for ABI to
construct a hotel at Lady Luck Biloxi (and to obtain financing for such
construction) and which provided for LLB and LLGC to guarantee such financing,
jointly and severally. Issuance of such a guarantee would have required the
consent of the holders of the 2001 Notes. During 1996, the Company elected to
terminate the agreement with ABI, as ABI was unable to obtain financing for such
construction. The Company continues to seek financing for the development of a
hotel and related amenities for Lady Luck Biloxi. There can be no assurance that
the Company will obtain such financing.
During 1996, the Company continued its efforts towards developing the
Missouri Project, located in Jefferson County, Missouri, approximately 20 miles
south of St. Louis. As of December 31, 1996, the Company has expended
approximately $8.4 million on the Missouri Project, consisting of approximately
$6.0 million for construction of a cruising vessel and approximately $2.4
million in other related development costs. Development of the Missouri Project
is dependent upon approval of the Missouri Gaming Commission, which investigates
applicants prior to licensing. During 1996, the Company and other applicants
provided updated information to the Missouri Gaming Commission. However, the
Missouri Gaming Commission did not select new applicants to be investigated
during 1996 and there can be no assurance that the Company will be selected or
obtain such approvals from the Missouri Gaming Commission. The Company has
entered the Kimmswick Agreement (as defined below) with Davis Gaming Company II
to construct and operate the facility contemplated by the Missouri Project.
However, there can be no assurance that the joint venture will be formed.
The Company also is considering alternatives to finance development of the
Vicksburg Project. As of December 31, 1996, the Company has invested
approximately $14.4 million in the Vicksburg Project with a net investment
remaining of approximately $9.9 million after project development cost
write-downs and reserves and other losses. The Company currently anticipates
that it will require approximately $47.9 million in additional capital to
complete the Vicksburg Project. Given its current financial condition, the
Company has determined not to use internally generated funds for the Vicksburg
Project. Accordingly, the Company is seeking alternatives to provide a return on
its investment in the Vicksburg Project, either through formation of a joint
venture to complete and operate the project, or through the sale of certain
assets related thereto. There can be no assurance that the Company will form a
joint venture or sell such assets.
Previously, the Company had planned to construct and operate a casino in
Gulfport, Mississippi (the "Gulfport Project"). However, due to increased
competition in the Gulfport gaming market, the Company has suspended further
development of the Gulfport Project. The Company is seeking joint venture
partners to assume the leases or invest in the proposed casino project; however,
there can be no assurance that such a joint venture will be consummated. Prior
to suspension of the Gulfport Project, the Company had not invested significant
amounts of capital therein, except with respect to a gaming vessel which can be
used at another location and certain leases.
Operating Casinos
Lady Luck Rhythm & Blues, Country Casino and the Pavilion. MLI commenced
dockside gaming operations of Lady Luck Rhythm & Blues on June 27, 1994 in
Coahoma County, Mississippi, commenced operation of an adjacent 173-room hotel
on August 16, 1994, commenced gaming operations of Country Casino and operation
of the Pavilion on May 21, 1996 and acquired and took over operation of the
120-room Riverbluff in Helena, Arkansas on July 3, 1996. Coahoma County,
Mississippi is located approximately 120 miles southeast of Little Rock,
Arkansas and 60 miles southwest of Memphis, Tennessee, on the Mississippi side
of the Helena Bridge, which crosses the Mississippi River and connects Arkansas
and Mississippi. Lady Luck Rhythm & Blues has a Las Vegas-style Rhythm & Blues
theme and is constructed on two adjacent barges. One barge has 25,000 square
feet of gaming space, including, as of February 28, 1997, approximately 680 slot
machines and 32 table games and a casino lounge area. The other barge has three
restaurants. Country Casino has a Las Vegas-style Country theme and offers
approximately 33,000 square feet of casino space, and as of February 28, 1997,
approximately 680 slot machines, 18 table games, six poker tables and a food
court. The Pavilion consists of approximately 25,000 square feet of
entertainment and event space and two movie theaters, an arcade and a logo shop.
Based upon operating results, these combined operations are currently the most
profitable of the Operating Casinos.
Lady Luck Natchez. Lady Luck Natchez commenced operations on February 26,
1993. This dockside casino is located on the Mississippi River at the
intersection of Highway 61, a north-south highway connecting Natchez,
Mississippi and Memphis, Tennessee, and Highway 84, an east-west highway which
runs parallel to and is between Interstates 10 and 20. Lady Luck Natchez
consists of a three story dockside facility with approximately 14,300 square
feet of gaming space and access to 500 dedicated parking spaces. The casino, as
of December 31, 1996, featured approximately 610 slot machines, 16 table games
and 4 poker tables. LLM purchased the River Park from River Park Hotel Group,
Inc. on April 15, 1996. The River Park is a 147-room hotel in Natchez. In
addition, the Company has commenced remodeling portions of the River Park,
including the replacement of certain furniture and equipment.
Lady Luck Bettendorf. Lady Luck Bettendorf commenced operations on April
21, 1995. Lady Luck Bettendorf is located on a leased parcel of land which is
adjacent to Interstate 74 on the Mississippi River (the "Bettendorf Site"). The
Bettendorf Site is approximately six miles from its primary competitor, the
Presidents Landing Casino in Davenport, Iowa, which together with Lady Luck
Bettendorf comprise approximately 90% of the gaming market in that area. Lady
Luck Bettendorf consists of an approximately 30,000 square foot casino on a
riverboat gaming vessel, which is approximately 300 feet by 100 feet, has an
entertainment area for parties and special events and, as of December 31, 1996,
approximately 860 slot machines, 38 other table games and six poker tables. The
vessel has gaming operations on three floors. The first floor has a 19th century
Iowa river theme, the second floor has a sports theme and the poker room is on
the third floor. The vessel is certified for 2,500 passengers including crew.
Other related facilities include a restaurant, gift shop, retail outlet center,
sports bar, showroom and approximately 1,000 parking spaces.
In December 1994, the Company entered into a joint venture (the "Bettendorf
Joint Venture") with Bettendorf Riverfront Development Corp. ("BRDC") to
complete and operate a casino in Bettendorf, Iowa ("Lady Luck Bettendorf"). The
joint venture agreement required that the Company and BRDC each contribute cash
to the Bettendorf Joint Venture of $3.0 million in return for a 50% ownership
interest. In addition, BRDC is leasing certain real property to the Bettendorf
Joint Venture at a lease rate equal to $150,000 per month. The Company is
leasing a gaming vessel to the Bettendorf Joint Venture for approximately
$189,000 per month, which amount was determined based upon arms-length
negotiations between the Company and BRDC. In addition, the Company is leasing
certain gaming equipment to the Bettendorf Joint Venture, as discussed below,
for approximately $122,000 per month, its fair market rental value.
All net profits and losses from all operations of Lady Luck Bettendorf are
allocated equally between the Company and BRDC. The Company has also been
granted the right to manage Lady Luck Bettendorf pursuant to a management
agreement for a fee equal to 2% of gross revenues plus 7% of EBITDA generated by
Lady Luck Bettendorf, less $37,500 per month. In no event shall such fee, prior
to the $37,500 adjustment, exceed 4% of Lady Luck Bettendorf's gross revenue.
BRDC provides consulting services to the Company concerning licensing, staffing
and management of the marine aspects of the gaming vessel and any land based
development. All consulting fees paid to BRDC (which will be based upon Lady
Luck Bettendorf's gross revenues) will be paid by the Company out of its
management fee. The Bettendorf Joint Venture is operated by a group of four
managers. Each of BRDC and the Company have appointed two managers. Most
management decisions, including capital calls and distributions, will be
determined by a majority of the managers.
Lady Luck Biloxi. Lady Luck Biloxi commenced operations on December 13,
1993. Biloxi is a beach resort town on the Gulf of Mexico. The casino has an
Asian theme and is located adjacent to Highway 90, approximately 60 miles east
of New Orleans, Louisiana. Lady Luck Biloxi consists of a two story dockside
facility with approximately 21,000 square feet of gaming space containing, as of
December 31, 1996, approximately 650 slot machines and 23 table games, a coffee
shop/buffet, a lounge bar, a gourmet restaurant and a logo shop. Currently, nine
other casinos are either operating or are under construction in the market
surrounding Lady Luck Biloxi. As a result of increased competition, Lady Luck
Biloxi became unprofitable on an operating basis during the second half of 1994
although operations stabilized and improved in the second half of 1995 and
during 1996. The Company continues to seek financing for the development of a
hotel and related amenities for Lady Luck Biloxi. There can be no assurance that
the Company will obtain such financing.
Lady Luck Central City. The Company's Central City, Colorado casino, Lady
Luck Central City, is located approximately 35 miles west of Denver. The Casino
has a Las Vegas-style theme, which distinguishes it from the traditional
Victorian theme of many other Central City casinos. Lady Luck Central City has
significant debt service requirements which it is currently unable to meet
through its operations. During November 1996, GCI entered into a non-binding
Memorandum of Understanding (the "Memorandum") with BWCC, Inc., which does
business as Bullwhackers-Central City ("Bullwhackers"). The Memorandum provides
for a combination of the respective companies' gaming establishments which
currently operate on adjacent real property in Central City, Colorado and the
use of, but not the title transfer or assumption of debt, related to the assets
of GCI and Bullwhackers. Pursuant to the Memorandum, Bullwhackers shall provide
resources and expertise to manage the joint operation subsequent to the
completion of certain capital improvements to be made by GCI to combine the
facilities and improve GCI's gaming equipment, which capital improvements shall
in no event exceed $1.5 million. The Memorandum provides for distributions to be
made quarterly in accordance with certain priorities which first recognize the
capital improvements to be made by GCI. The Memorandum provides GCI an option to
purchase the assets of Bullwhackers and Bullwhackers an option to purchase the
assets of GCI upon advance written notice after the joint facility commences
gaming operations. In addition, the Memorandum provides a put option for
Bullwhackers to sell its assets to GCI under similar terms. The option price
shall be determined based on carrying amounts or earnings multiples and shall be
at discounted amounts if the sale is within a certain period and shall be in
exchange for certain consideration, a portion of which may include LLGC common
stock. The transactions contemplated by the Memorandum are subject to various
contingencies including, inter alia, the due diligence investigation of the
parties, governmental approvals, approval by the Boards of Directors of GCI and
Bullwhackers, and the negotiation and execution of definitive agreements.
However, no assurance can be provided that these contingencies will be
satisfied.
The Bally's Joint Venture. In March 1995, the Company formed a joint
venture with affiliates of Bally's Entertainment Corporation ("Bally's") to
complete a casino/hotel project in northern Tunica County, Mississippi. Upon
formation of the Bally's Joint Venture, ORD contributed its existing 240-room
hotel in northern Tunica County, as well as other related assets and
liabilities, with a total net cost of $16.1 million, to the joint venture.
Bally's contributed a closed dockside casino (the "Dockside Casino") which was,
at the time of such contribution, located at Mhoon Landing in southern Tunica
County, and certain other assets to the joint venture. The Dockside Casino has
been relocated to the ORD hotel site. A Bally's entity manages and controls the
Bally's Joint Venture. The Bally's Joint Venture is owned 58% by Bally's, 35% by
ORD and 7% by D.J. Brata, a former 11% minority shareholder of ORD. The Company
is currently negotiating with Bally's and D.J. Brata concerning the final amount
of the Company's initial capital contribution to be credited to its partners'
capital account and other matters in accordance with the joint venture agreement
and, in 1995, provided a reserve of $350,000 relating to any unfavorable
resolution of these matters. Hotel operations under Bally's commenced in April
1995 and casino operations commenced in December 1995.
The Bally's Joint Venture consists of approximately 40,000 square feet of
gaming space, with approximately 1,260 slot machines and 57 table games. In
addition to the 240-room hotel, the Bally's Joint Venture has a buffet/coffee
shop, a steak house, a multi-purpose entertainment complex, administrative
facilities and approximately 1,200 parking spaces.
Development Stage Projects
In addition to its Operating Casinos, the Company has two dockside or
riverboat casino projects in various stages of development, one in each of
Kimmswick, Missouri and Vicksburg, Mississippi. The current status of each of
these Development Stage Projects is described below.
The Missouri Project. Previously, the Company and a local investor (the
"Original Investor") intended to develop a themed hotel and entertainment
center, including a casino on a cruising vessel, in Jefferson County, Missouri,
located just outside the city of Kimmswick and approximately 20 miles south of
St. Louis. At that time, the Original Investor owned approximately 7% of the
Missouri Project. However, construction of the Missouri Project was delayed due
to the prohibition against games of chance (slot machines and roulette) until
Missouri voters ratified a constitutional amendment in November 1994. The
Company determined that it was not in a position to commit additional capital to
the Missouri Project. Thus, management determined that it was in the Company's
best interests to seek a new joint venture partner to assist in completion of
the Missouri Project.
Accordingly, on November 30, 1995, LLK entered into an Agreement of General
Partnership (the "Kimmswick Agreement") with Davis Gaming Company II ("Davis")
to form a joint venture (the "Kimmswick Joint Venture") to construct and operate
a hotel and casino on an approximately 45-acre parcel of land in Jefferson
County, Missouri (the "Kimmswick Site"). Through December 31, 1996, the Company
has expended approximately $8.4 million in the Missouri Project. Such investment
consists of approximately $6.0 million for construction of the partially
finished cruising vessel and approximately $2.4 million in other costs
associated with the development of the project.
Pursuant to the Kimmswick Agreement, LLK will contribute certain assets
with a book value of approximately $8.0 million to the Kimmswick Joint Venture
in consideration of a 40% interest in the Kimmswick Joint Venture (if the assets
contributed by LLK are determined to have a value of less than $8.0 million, LLK
will have to contribute additional cash or assets in the amount of such
shortfall or its interest in the Kimmswick Joint Venture will be proportionately
reduced) and Davis will contribute $15.0 million in cash in consideration of a
60% interest in the Kimmswick Joint Venture. Generally, LLK's interest in the
Kimmswick Joint Venture will not be reduced below 20%. In addition, Davis agrees
either to obtain financing on behalf of the Kimmswick Joint Venture or provide
additional capital to the Kimmswick Joint Venture in amounts aggregating an
additional $57.0 million. Such additional capital contributions by Davis would
be, depending upon the circumstances under which such contributions are made,
either treated as preferred capital contributions or result in Davis receiving
an increased interest in the Kimmswick Joint Venture. In the event that the
costs of completing the first two phases of the Missouri Project exceed $80.0
million, each of LLK and Davis will have the right, but not the obligation, to
make an additional capital contribution to the Kimmswick Joint Venture based
upon their pro rata share of the additional amount of required funding. If only
one of such partners elects to contribute additional capital, the contributing
partner may elect to withdraw such contribution, to advance the non-contributing
partner's share and have the entire contribution treated as a loan to the joint
venture or to advance the non-contributing partner's share and have the entire
contribution treated as an additional capital contribution (which will result in
a proportionate adjustment of the partners' respective interests in the joint
venture). The partners will have no other right or obligation to make additional
capital contributions to the joint venture.
The obligations of Davis to contribute capital to, or otherwise provide
financing to, the Kimmswick Joint Venture are subject to satisfaction of
numerous conditions, including that there shall be no governmental regulation
that is likely to increase the cost of, or diminish the EBITDA to be generated
by, the Missouri Project in amounts exceeding certain thresholds and that a
gaming license shall have been obtained from the Missouri Gaming Commission.
There can be no assurance that any of such conditions will be satisfied and,
therefore, there can be no assurance that the Kimmswick Joint Venture will be
funded.
Beginning with the first quarter in which the Kimmswick Joint Venture has
operating income, the joint venture will distribute 80% of its Available Funds
(defined as net income less debt repayments and capital expenditure and other
reserves) in each of the first three fiscal quarters of each fiscal year to the
partners and, at the end of each fiscal year, the joint venture will distribute
an amount which, together with all other amounts previously distributed during
such fiscal year, equals 90% of Available Funds for such fiscal year. All
distributions of Available Funds shall be made first to Davis to the extent of
its priority or preferred interest and then to the partners in proportion to
their respective interests in the joint venture. LLK will also be entitled to
certain additional distributions to the extent that its tax liability in respect
of the joint venture exceeds the amount otherwise distributed to it.
The Kimmswick Agreement provides that the Company will manage the Kimmswick
Joint Venture for a five-year term. The Company will be paid a management fee
equal to 2% of the joint venture's gross revenues plus 7% of the EBITDA of the
joint venture but such management fee will in no event exceed 4% of the joint
venture's gross revenues and the aggregate management fee in any year plus the
amount of all distributions to LLK in such year generally will not exceed the
amount of distributions to Davis in such year. LLK's continued engagement as
manager of the Kimmswick Joint Venture will be dependent upon, among other
things, the achievement of certain performance standards. In addition, upon
meeting certain other performance criteria, LLK will have the unilateral right
to manage the Kimmswick Joint Venture for an additional five years.
Development of the Missouri Project is subject to approval by the Missouri
Gaming Commission. The Company has filed an application seeking such approval.
The State of Missouri investigates applicants at its discretion and there can be
no assurance that the Company's application will be actively reviewed in future
periods. In addition, a person owning real property adjacent to the site of the
Kimmswick Project sought to overturn decisions by the Jefferson County
Commission (the "Commission") with respect to the zoning of such site. A trial
was conducted in April 1996 and the court decided to uphold the zoning decisions
made by the Commission.
The Vicksburg Project. The Company's planned casino project in Vicksburg,
Mississippi is expected to be located on approximately 23.9 acres of land owned
by the Company immediately south of the I-20 bridge along the Mississippi River,
with access to Washington Street. The original Vicksburg Project plans include a
"Monte Carlo" themed approximately 32,000 square foot dockside casino, a
250-room hotel, 934 parking spaces, restaurant facilities and an arcade. A
gaming license was granted to LLV on August 18, 1994. As of December 31, 1996,
approximately $14.4 million has been spent by the Company to develop the
Vicksburg Project (including approximately $7.0 million to acquire the land).
Reserves of $3.8 million were provided in 1994 to reduce the carrying value of
the Vicksburg Project assets to estimated net realizable value. The Company
currently estimates that it will cost an additional $47.9 million to complete
construction and commence operations of the Vicksburg Project. The Company has
ceased committing material amounts of capital to the Vicksburg Project and is
considering alternatives to provide a return on its investment in the Vicksburg
Project, either through formation of a joint venture to complete and operate the
project, or through the sale of certain assets related thereto. There can be no
assurance that the Company will form a joint venture or sell such assets.
Pre-development Stage Projects
In addition to its Development Stage Projects, the Company is in the
Pre-development stage of casino projects in Scott City, Missouri and Vancouver,
British Columbia. As of December 31, 1996, the Company has invested
approximately $1.1 million of capital in these Pre-development Stage Projects
(which was expensed when incurred) and does not anticipate investing additional
material amounts of capital prior to licensing. The Company is seeking joint
venture partners to finance such projects. There can be no assurance that the
Company will form such joint ventures. A brief description of each of the Pre-
development Stage Projects is set forth below.
Lady Luck Vancouver. The Company has entered into a management agreement
with the Coquitlam Band (the "Band") to develop and manage a gaming facility to
be located on tribal land approximately eight miles from downtown Vancouver,
British Columbia, Canada (the "Vancouver Project"). The Vancouver Project is
expected to consist of a gaming and entertainment center, a youth-oriented
entertainment center and an outdoor amphitheater. The Company anticipates that
the Vancouver Project will cost approximately $33.0 million to complete. The
management agreement requires ratification by the Band prior to being perfected.
The provincial government is currently studying the expansion of gaming in
British Columbia, which could include gaming on First Nation Reserve lands.
The Scott City Project. The Company has entered into options to lease
property for a casino project in Scott City, Missouri (the "Scott City
Project"). Scott City is approximately 150 miles south of St. Louis, Missouri,
along Interstate 55. The Scott City Project is expected to consist of a gaming
vessel, a 200-room hotel, an outlet mall, an athletic complex and an 18-hole
golf course. The Company anticipates that the Scott City Project will cost
approximately $65.0 million to complete. The Company has been endorsed by, and
entered into a development contract with, the City of Scott City to be the
exclusive casino operator for a three year period in Scott City. The Company has
filed an application for a gaming license with respect to the Scott City
Project. The Company intends to seek joint venture partners to finance the Scott
City Project.
Marketing
The Company's marketing strategy is to target middle-market, value-oriented
gaming customers and to employ systematic marketing programs to attract and
retain customers. The Company uses general marketing approaches to attract first
time customers to its casinos by advertising its slot player club program,
popular entertainment and other promotions. Once customers enter the Company's
casinos, the Company attempts to capture the name and playing level of every
slot machine and table game player, regardless of their level of play. The
Company uses this information to treat every player as a VIP by sending them
follow up promotions based on their level of play. The Company believes that
utilizing the Lady Luck name, combined with these personalized database driven
marketing programs, will create a strong brand image synonymous with quality
gaming facilities, service and food.
Initially, the Company focuses on targeting the local and drive-in markets
surrounding each of the Operating Casinos. To attempt to create a positive image
and maintain awareness of the Operating Casinos, the Company utilizes direct
mail, television, radio, billboard and newspaper advertising. To target local
residents, the Company's promotions emphasize the appetizing food, friendly
service, a high paying slot player club program, and the latest in gaming
technology. The goal of the Company's marketing program is to capture the name,
level of play and preferred games of every customer that either (i) plays slot
machines or table games; (ii) responds to an advertisement or redeems a coupon
book; or (iii) is recommended by another customer. The Company uses this
information to treat every customer as a VIP, regardless of the customer's
playing level. Utilizing a similar strategy, Gemini, as defined below, and the
Company's Operating Casinos have built a database of over one million customers.
Management believes the Company will benefit from utilizing the names on this
database to target potential customers. The Company uses this data, as well as
the data collected at the Company's other casinos, to implement direct-mail
marketing programs designed to increase the frequency of casino patron visits.
The Company expects to continue to build a detailed database by utilizing
customer tracking systems.
As the markets surrounding the Company's Operating Casinos continue to
mature, the Company has expanded its focus to encompass the surrounding tourist
markets of each Operating Casino. The Company utilizes and continuously monitors
the effectiveness of direct mail, television advertising, newspapers, billboards
and tourist magazines placed in the surrounding areas to increase the Operating
Casinos' visibility and to promote the image that these casinos are part of the
history and romance of riverboats of the past. Management believes that the
advent of casino gaming will increase the current length of a tourist's stay as
well as increase the number of tourists into some areas. The Company also works
with local organizations with the goal of promoting the areas to increase the
number of tourists.
Management Agreements
The Company previously entered into certain management agreements (the "Old
Management Agreements") with Lady Luck Casino, Inc. ("LLCI"), a company owned by
Andrew Tompkins, the CEO and Chairman of the Board of the Company. Pursuant to
the Old Management Agreements, LLCI provided management services to the Company
regarding the operations and marketing of each of the Operating Casinos.
Effective January 1, 1996 the Company entered into new marketing agreements (the
"New Marketing Agreements") with entities controlled by Mr. Tompkins. Under the
New Marketing Agreements, LLGC pays an annual licensing fee with respect to the
Lady Luck name and the mailing list developed by Gemini, Inc., a wholly-owned
corporation of Mr. Tompkins which does business as Lady Luck Casino/Hotel in Las
Vegas, Nevada ("Gemini"), equal to the greater of (a) 9% of LLGC's EBITDA
(calculated as EBITDA of LLGC and all its subsidiaries and joint ventures
(multiplied, in the case of the Kimmswick Joint Venture, if consummated, and the
Bettendorf Joint Venture, by the interest owned by the Company in such joint
ventures), excluding, among other things, all revenues and expenses arising from
any casino or casino/hotel for which LLGC is not the operator and which does not
utilize the mailing list or Lady Luck name and excluding revenues from the lease
of equipment owned by LLGC to third parties) and (b) $1,700,000 per year (as
adjusted based on the Consumer Price Index). LLGC has agreed to use the "Lady
Luck" name on all existing and future casinos which it operates. With respect to
the Bettendorf Joint Venture, LLCI assigned to LLGC its rights to receive a
management fee and its obligation to pay part of that fee to BRDC (the "BRDC
Obligation"). During any default in the payment of principal of or interest on
the Notes, LLGC will not pay (but will accrue on its books) any licensing fee to
LLCI. In addition, LLGC: (i) pays Gemini the sum of $300,000 per year as
adjusted based on the Consumer Price Index for corporate office facilities and
certain services with respect to such corporate office facilities; (ii)
reimburses a related party of LLGC, wholly-owned by Mr. Tompkins, which performs
marketing services on the Company's behalf, for certain allocated payroll and
overhead costs; and, (iii) will no longer receive reimbursement from a
wholly-owned corporation of Mr. Tompkins for the salary and benefits paid to Mr.
Tompkins as Chairman of the Board and Chief Executive Officer of LLGC
(collectively the "Management/License Fee Overhead Costs").
Employees
As of December 31, 1996, the Company had approximately 2,950 employees:
approximately 990 employees at Lady Luck Rhythm & Blues, Country Casino and the
Pavilion, approximately 470 employees at Lady Luck Natchez, approximately 810
employees at Lady Luck Bettendorf, approximately 500 employees at Lady Luck
Biloxi, approximately 150 employees at Lady Luck Central City, and anticipates
employing up to 500 to 800 employees at each of the other Development Stage
Projects. The Company's employees are currently non-union. The Company has not
experienced any work stoppages and believes its relations with its employees are
good.
Competition
Currently, the Company owns and operates three dockside casinos in
Mississippi, a land-based casino in Colorado and, through the Bettendorf Joint
Venture, a riverboat casino in Iowa. In addition, the Company has an interest in
the Bally's Joint Venture, which commenced operations in northern Tunica County,
Mississippi during December, 1995. The Company also has dockside or riverboat
casinos in various stages of development in Mississippi and Missouri. The
Company is also in the pre-development stages of casino projects in Missouri and
British Columbia. The Company believes that these gaming markets are extremely
competitive and expects them to become even more competitive. The Company
competes in these gaming markets by attempting to develop locations within such
markets which are more accessible to potential customers and through its sales
and marketing efforts described above.
In 1996, the Mississippi gaming market became increasingly competitive. As
of December 31, 1996, there were a total of 30 licensed and operating dockside
gaming facilities in Mississippi, consisting of 10 in Tunica, eight in Biloxi,
two in Gulfport, four in Vicksburg, one in Hancock County, one in Coahoma
County, one in Natchez and three in Greenville. Two additional dockside casinos
are licensed and under construction in Biloxi. In addition, DeSoto County, the
northwestern-most Mississippi County and nearest to Memphis, could, under
existing state law, vote to authorize gaming activities. The voters of DeSoto
County have voted against legalized gaming on three occasions, most recently in
November, 1996. However, local referenda can be held during presidential
election years, and no assurance can be given that gaming will not be approved
in DeSoto County in future elections. Furthermore, the Choctaw Indian Tribe has
negotiated a compact with the State of Mississippi and has opened a land-based
casino located within approximately 100 miles to the east of Jackson,
Mississippi.
Accordingly, there is a substantial risk that the supply of gaming
facilities in Mississippi will exceed the demand for gaming, which could have a
material adverse effect on the operating results of Lady Luck Rhythm & Blues,
Country Casino, Lady Luck Natchez, Lady Luck Biloxi, the Bally's Saloon and
Gambling Hall, and, if opened, the Vicksburg Project.
In Arkansas, a gaming referendum, which, if passed, would have legalized
certain forms of gaming at certain locations was defeated in November of 1996.
If gaming were legalized in certain areas of Arkansas, it could have a material
adverse effect on the Company's Coahoma County facilities and the Bally's Saloon
and Gambling Hall.
In Colorado, the Company competes with other limited stakes gaming
establishments in Central City, nearby Black Hawk, Cripple Creek and on Native
American land in the southwestern part of Colorado. Competition for gaming
revenue in Colorado is intense. As a result, the number of gaming establishments
has decreased from a peak of 75 in September 1992 to 55 in February 1997.
The Company expects that the Missouri Project, if opened, will face
competition from dockside and riverboat gaming in Missouri, including St. Louis,
as well as existing and future riverboat and dockside unlimited stakes gaming in
Illinois.
Lady Luck Bettendorf faces competition from two other riverboats in the
Quad Cities area, including riverboats in Davenport, Iowa and Rock Island,
Illinois.
The Company also competes with gaming facilities nationwide and in Canada,
including land-based casinos in Nevada, New Jersey, South Dakota and Ontario,
riverboat or dockside gaming in Missouri as well as various gaming operations on
Native American land in such states as New York, California, Connecticut, Iowa,
Michigan, Minnesota, Arizona, Washington, Wisconsin, Louisiana and Mississippi.
Other jurisdictions may legalize various forms of gaming that may compete with
the Company in the future. Although the Company expects that the presence of
gaming in a city will result in an increase in the number of people visiting
such city, there can be no assurance that such an increase will occur. The
failure of such cities to realize such an increase, or a subsequent decrease in
the number of visitors to an area where the Company is engaged in gaming, could
have a material adverse effect on the Company's operations.
In any jurisdiction where the Company may commence operations, it will face
competition for desirable sites or qualified personnel. The Company will also
compete with other forms of wagering, including bingo and pull tab games, card
clubs, pari- mutuel betting on horse racing and dog racing, state-sponsored
lotteries, video lottery terminals and video poker terminals, as well as other
forms of entertainment.
Certain of the Company's competitors have more gaming industry experience,
larger operations or significantly greater financial and other resources than
the Company. Given these factors, it is possible that substantial competition
could have a material adverse effect on the Company's future results of
operations.
Seasonality and Weather
Even if the Company is able to expand into other jurisdictions, it may
remain dependent on a relatively small number of dockside facilities. A flood or
other severe weather condition could cause the Company to lose the use of one or
more dockside facilities for an extended period. Additionally, due to its
location on the Gulf of Mexico, Lady Luck Biloxi is especially vulnerable to
damage from hurricanes. The inability to use a dockside facility during any
period could have a material adverse effect on the Company's financial results.
A disproportionate amount of Lady Luck Central City's revenues are received
during the summer months. Lady Luck Central City is accessible only via a
narrow, winding mountain road and, accordingly, inclement weather may have an
adverse effect on its revenues. While seasonal revenue fluctuations may occur at
the casinos in Mississippi, Iowa and Missouri, such seasonal fluctuations are
expected to be routinely less significant than those experienced in Colorado.
REGULATORY MATTERS
LLGC, through its subsidiaries and affiliates, owns and operates gaming
casinos in Mississippi, Colorado and Iowa and intends to develop a project in
Missouri. The entities owning such casinos and any entities owning casinos in
the future are or will be required to obtain and maintain certain gaming
licenses from the applicable state regulatory authorities and comply with
certain regulations with respect thereto. Although the Company believes it is in
material compliance with all applicable gaming regulations, non-compliance by
the Company could have a material adverse effect on the Company's operations.
Generally, regulatory authorities have broad discretion in granting, renewing
and revoking gaming licenses. LLGC itself is required to be found suitable to
own the entities directly or indirectly owning such casinos. In addition, the
Company's directors and many of the employees of such casinos are required to
obtain gaming licenses. Where it has not already done so, the Company intends to
apply for such licenses and to have its employees, to the extent required, apply
for such licenses. All directors and executive officers of the Company have
received all necessary approvals with respect to the Operating Casinos and have
received, applied for or will apply for all necessary approvals with respect to
the Development Stage Projects and the Pre-development Stage Projects. While the
Company has received certain gaming licenses in the states of Mississippi,
Colorado and Iowa, the Company has not received licenses in any other
jurisdiction. There can be no assurances that each casino, officer, director, or
the appropriate gaming employees will receive (where such has not yet been
received) or maintain the necessary gaming licenses, or that the Company or its
casinos will be able to operate successfully or profitably under the terms of
any such licenses. The failure of the Company or any of its key personnel to
obtain or retain a license in a particular jurisdiction could have a material
adverse effect on the Company's ability to obtain or retain licenses in other
jurisdictions.
Any jurisdiction in which the Company may seek to conduct gaming operations
in the future would likely require the Company to apply for and obtain
regulatory approvals with respect to the construction, design and operational
features of whatever gaming facilities it intends to utilize. There can be no
assurance that the Company will obtain the necessary approvals on a timely basis
or with acceptable conditions to allow the Company to open any of the
Development Stage Projects or Pre- development Stage Projects. In addition, the
State of Mississippi currently requires, and other jurisdictions may require,
prior approval for all entities that are conducting gaming within their
respective jurisdictions before conducting gaming in other jurisdictions. The
obtaining of such licenses and approvals may be time consuming and expensive and
cannot be assured. Any regulations adopted by the gaming commissions, the
legislatures or any governmental authority having jurisdiction in Mississippi,
Colorado, Missouri, Iowa, or other jurisdictions in which the Company has or
intends to have gaming operations may have a material adverse effect on the
Company's results of operations or financial condition, including its ability to
raise financing.
Mississippi Gaming Regulations
The ownership and operation of a gaming business in Mississippi is subject
to extensive laws and regulations, including the Mississippi Gaming Control Act
passed in June 1990 (the "Mississippi Act") and the regulations (the
"Mississippi Regulations") promulgated thereunder by the Mississippi Gaming
Commission and Mississippi Tax Commission which are empowered to oversee and
enforce the Mississippi Act. Gaming in Mississippi can be legally conducted only
on vessels of a certain minimum size in navigable waters in counties bordering
the Mississippi River or in waters of the State of Mississippi (so-called
dockside gaming) which lie adjacent and to the south (principally in the Gulf of
Mexico) of the Counties of Hancock, Harrison, Coahoma and Jackson, and only in
counties in Mississippi in which the registered voters have not voted to
prohibit such activities. The voters in Jackson County, the southeastern-most
county of Mississippi, and DeSoto County, south of Memphis, Tennessee, have
voted to prohibit gaming in such counties. Gaming may also be legally conducted
on Native- American lands in Mississippi as regulated in part by the Federal
Indian Gaming Regulatory Act of 1988, which activity is not subject to the
Mississippi Act. Presently, the Mississippi Band of Choctaws operates a land
based casino at a location in East- Central Mississippi.
The Mississippi Act requires that a person (including any corporation or
other entity) must be licensed to conduct gaming activities in Mississippi. A
license will be issued only for a specified location which has been approved as
a gaming site by the Mississippi Gaming Commission prior to issuing a license.
The Mississippi Act also requires that each officer or director of a gaming
licensee, or other person who is actively and directly engaged in the
administration or supervision of gaming, or who has any other significant
involvement with the activities of any gaming subsidiary, or who exercises a
material degree of control over the licensee, either directly or indirectly,
must be found suitable by the Mississippi Gaming Commission. In addition, any
employee of the licensee which is directly involved in gaming must obtain a work
permit from the Mississippi Gaming Commission. The Mississippi Gaming Commission
will not issue a license or make a finding of suitability unless they are
satisfied, after an extensive investigation paid for by the applicant, that the
persons associated with the gaming licensee or applicant for a license have
proven that they are of good character, honesty and integrity, with no relevant
or material criminal record. In addition, the Mississippi Gaming Commission will
not issue a license unless they are satisfied that the licensee is adequately
financed or has a reasonable plan to finance its proposed operations from
acceptable sources, and that persons associated with the applicant have
sufficient business probity, competence and experience to engage in the proposed
gaming enterprise. The Mississippi Gaming Commission may refuse to issue a work
permit to a gaming employee (i) if the employee has committed larceny,
embezzlement or any crime of moral turpitude, or knowingly violated the
Mississippi Act or Mississippi Regulations, or (ii) for any other reasonable
cause.
The Mississippi Gaming Commission has the power to deny, limit, condition,
revoke and suspend any license, finding of suitability or registration, or fine
any person, as they deem reasonable and in the public interest, subject to an
opportunity for a hearing. The Mississippi Gaming Commission may fine any
licensee or person who was found suitable up to $100,000 for each violation of
the Mississippi Act or the Mississippi Regulations, which is the subject of an
initial complaint, and up to $250,000 for each such violation which is the
subject of any subsequent complaint. The Mississippi Act provides for judicial
review of certain decisions of the Mississippi Gaming Commission by petition to
a Mississippi Circuit Court, but the filing of such petition does not
necessarily stay any such action taken by the Mississippi Gaming Commission
pending a decision by the Circuit Court.
License fees and taxes, computed in various ways depending on the type of
gaming involved, are payable to the State of Mississippi and to the counties and
cities in which the gaming subsidiaries' respective operations are conducted.
Depending on the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly or annually and are based upon a percentage of
the gross gaming revenues received by a casino operation, the number of slot
machines operated by such casino, or the number of table games operated by such
casino. Each gaming licensee must pay a license fee to the State of Mississippi
based upon "gaming receipts" (generally defined as gross receipts less payouts
to customers as winnings). In Coahoma and Harrison Counties, for instance, the
local governments have imposed gross revenue fees of 3.2% as well as annual fees
on slot machines. As of June 1, 1995, the City of Natchez was authorized to
impose an equivalent tax on casino gross revenue. The license fee equals 4% of
gaming receipts of $50,000 or less per month, 6% of gaming receipts over $50,000
and up to $134,000 per month, and 8% of gaming receipts over $134,000 per month.
The foregoing license fees are allowed as a credit against the Company's
Mississippi state income tax liability for the year paid. The Company may also
be subject to a local municipal or county tax equal to one-tenth of the license
fee due to the State of Mississippi as set forth above. An additional license
fee, based upon the number of table games conducted or planned to be conducted
on the gaming premises, is payable to the State of Mississippi annually in
advance. Based upon the Company's planned activities, this additional licensee
fee will equal approximately $399,200 (aggregate for all the Dockside Casinos),
plus $100 for each game in excess of 35 games at any one location. Municipal and
county fees have been and may in the future also be assessed, and may vary from
jurisdiction to jurisdiction. All taxes must be timely paid in order to retain
the gaming license.
The Company is also subject to certain audit and record keeping laws and
regulations, primarily intended to ensure compliance with the Mississippi Act,
including compliance with the provisions relating to the payment of license
fees. The Mississippi Gaming Commission, through the power to regulate licenses,
has the power to impose additional restrictions on the holders of the securities
of the Company, at any time. The Company is required to provide the Mississippi
Gaming Commission with notice of any changes in directors or officers. The
Mississippi Gaming Commission requires that any CEO, president, CFO or secretary
of the Company or its subsidiaries be found suitable. In addition, the
Mississippi Gaming Commission requires that any other director or officer of the
Company who has a substantial involvement with gaming or a significant
administrative supervisory role of the gaming operations be found suitable.
These suitability findings may be made after such individuals take office as
directors or officers. However, the Mississippi Gaming Commission may require
that the Company sever relations with individuals if they are not found
suitable. In addition, during the pendency of any suitability finding, the
Mississippi Gaming Commission may require that such individuals not act as
directors or officers. Messrs. Tompkins, Uboldi, Reid and Hlavsa have been found
suitable by the Mississippi Gaming Commission.
Because the Company is licensed to conduct gaming in Mississippi, neither
the Company nor any affiliates may engage in gaming activities outside of
Mississippi without the prior approval of the Mississippi Gaming Commission. The
Mississippi Gaming Commission has adopted regulations related to foreign gaming
approval and the impact of any such regulations on the future operations of the
Company cannot be determined at this time. The Mississippi Gaming Commission has
confirmed that this requirement will not apply retroactively. However, the
Mississippi Gaming Commission will need to approve the Company's future gaming
operations outside of Mississippi. The Compan's operations in Colorado and Iowa
have been approved by the Mississippi Gaming Commission.
The Mississippi Regulations also require prior approval for a "plan of
recapitalization" as defined by such regulations. In addition, the Company must
submit detailed financial, operating and other reports to the Mississippi Gaming
Commission. Substantially all loans, leases, securities and similar financing
transactions entered into by the Company must be reported to or approved by the
Mississippi Gaming Commission. The Company is required periodically to submit
detailed financial and operating reports to the Mississippi Gaming Commission
and to furnish any other information which the Mississippi Gaming Commission may
require. The Mississippi Act requires annual audits by independent certified
public accountants of the financial statements of casino licensees with gross
revenue of $3 million or more.
Any permanently moored vessel used for casino operations must meet the fire
safety standard of the Mississippi Fire Prevention Code and the Life Safety Code
and the Standards for the Construction and Fire Protection of Marine Terminals,
Piers and Wharfs of the National Fire Protection Association. Additionally, any
establishment to be constructed for dockside gaming must meet the Southern
Standard Building Code or the local building code, if such a local building code
has been implemented at the casino's site. All permanently moored vessels must
comply with certain standards for stability, flooding and stability after
damage. The regulations require approvals by the American Bureau of Shipping,
which is under contract with the Mississippi Gaming Commission to perform such
stability tests.
Colorado Gaming Regulations
The State of Colorado created the Division of Gaming (the "Division")
within the Department of Revenue to license, implement, regulate and supervise
the conduct of limited stakes gaming. The Director of the Division (the
"Director"), under the supervision of a five-member Colorado Commission, has
been granted broad power to ensure compliance with the law and regulations
adopted thereunder (the "Colorado Regulations").
The Colorado Commission is empowered to issue five types of gaming and
gaming related licenses. Lady Luck Central City was granted an operator's and
retailer's gaming license on April 16, 1993. The license must be renewed each
year.
As a general rule, under the Colorado Regulations, it is a criminal
violation for any person to have a legal, beneficial, voting or equitable
interest, or right to receive profits, in more than three retail gaming licenses
in Colorado. The Commission has ruled that a person does not have an interest in
a licensee for purposes of the multiple-license prohibition if: (i) such person
has less than a five percent (5%) interest in an institutional investor which
has an interest in a publicly traded licensee or publicly traded company
affiliated with a licensee (such as the Company); (ii) a person has a five
percent (5%) or more financial interest in an institutional investor, but the
institutional investor has less than a five percent (5%) interest in a publicly
traded licensee or publicly traded company affiliated with a licensee; (iii) an
institutional investor has less than a five percent (5%) financial interest in a
publicly traded licensee or publicly traded company affiliated with a licensee;
(iv) an institutional investor possesses securities in a fiduciary capacity for
another person, and does not exercise voting control over five percent (5%) or
more of the outstanding voting securities of a publicly traded licensee or of a
publicly traded company affiliated with a licensee; (v) a registered broker or
dealer retains possession of securities of a publicly traded licensee or of a
publicly traded company affiliated with a licensee for its customers in street
name or otherwise, and exercises voting rights for less than five percent (5%)
of the publicly traded licensee's voting securities or of a publicly traded
company affiliated with licensee; (vi) a registered broker or dealer acts as a
market maker for the stock of a publicly traded licensee or of a publicly traded
company affiliated with a licensee and possesses a voting interest in less than
five percent (5%) of the stock of the publicly traded licensee or of a publicly
traded company affiliated with a licensee; (vii) an underwriter is holding
securities of a publicly traded licensee or of a publicly traded company
affiliated with a licensee as part of an underwriting for no more than 90 days
if it exercises voting rights with respect to less than five percent (5%) of the
outstanding securities of a publicly traded licensee or a publicly traded
company affiliated with a licensee; (viii) a stock clearinghouse holds voting
securities for third parties, if it exercises voting rights with respect to less
than five percent (5%) of the outstanding securities of a publicly traded
licensee or of a publicly traded company affiliated with a licensee; or (ix) a
person owns less than five percent (5%) of the voting securities of the publicly
traded licensee or publicly traded company affiliated with a licensee. Hence,
the business opportunities of the Company and its stockholders in Colorado are
limited to such interests that comply with the statute and Commission's rules.
The Colorado Commission also has the right to request information from any
person directly or indirectly interested in, or employed by, a licensee, and to
investigate the moral character, honesty, integrity, prior activities, criminal
record, reputation, habits and associations of (i) all persons licensed pursuant
to the Colorado Limited Gaming Act; (ii) all officers, directors and
stockholders of a licensed privately held corporation; (iii) all officers,
directors and stockholders holding either a 5% or greater interest or a
controlling interest in a licensed publicly traded corporation; (iv) all general
partners and all limited partners of a licensed partnership; (v) all persons
which have a relationship similar to that of an officer, director or stockholder
of a corporation; (vi) all persons supplying financing or loaning money to any
licensee connected with the establishment or operation of limited gaming; and
(vii) all persons having a contract, lease or ongoing financial or business
arrangement with any licensee, where such contract, lease or arrangement relates
to limited gaming operations, equipment, devices or premises. In addition, under
the Colorado Regulations, every person who is a party to a "gaming contract"
with an applicant for a license, or with a licensee, upon the request of the
Colorado Commission or the Director, promptly must provide to the Director all
information which may be requested concerning: financial history, financial
holdings, real and personal property ownership, interests in other companies,
criminal history, personal history and associations, character, reputation in
the community, and all other information which might be relevant to a
determination whether a person would be suitable to be licensed by the Colorado
Commission. Failure to provide all information requested constitutes sufficient
grounds for the Director or Colorado Commission to require a licensee or
applicant to terminate its "gaming contract" with any person who failed to
provide the information requested. In addition, the Director or the Colorado
Commission may require changes in "gaming contracts" before an application is
approved or participation in the contract is allowed. A "gaming contract" is
defined as an agreement in which a person does business with or on the premises
of a licensed entity.
Under the Colorado regulations, any person or entity having any direct or
indirect interest in a gaming license 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, background 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" automatically will be required of all persons (other than
certain institutional investors discussed below) which directly or indirectly
own ten percent (10%) or more of a direct or indirect legal, beneficial or
voting interest in Lady Luck Central City, through their ownership in the
Company. Such persons must report their interests and file appropriate
applications within 45 days after acquiring such interests. Persons directly or
indirectly having a five percent (5%) or more interest (but less than 10%) in
Lady Luck Central City, through their ownership in the Company, must report
their interest to the Commission within ten (10) days after acquiring such
interest and may be required to provide additional information and to be found
suitable. If certain institutional investors provide certain information to the
Commission, such investors, at the Commission's discretion, may be permitted to
own up to 14.99% of Lady Luck Central City, through their ownership in the
Company, before being required to be found suitable. All licensing and
investigation fees will have to be paid for by the person in question.
A person or entity may not sell, lease, purchase, convey or acquire a
controlling interest in the Company without the prior approval of the
Commission. The Company may not sell any interest in GCI without the prior
approval of the Commission.
All persons employed by the Company and involved, directly or indirectly,
in gaming operations in Colorado also are required to obtain a gaming license in
Colorado. Lady Luck Central City pays the cost of such licensing for certain of
its employees.
An application for licensure or suitability may be denied for any cause
deemed reasonable by the Colorado Commission or the Director, as appropriate.
Specifically, the Colorado Commission and the Director must deny a license to
any applicant who (i) fails to prove by clear and convincing evidence that the
applicant is qualified; (ii) fails to provide information and documentation
requested, fails to reveal any fact material to qualification, or supplies
information which is untrue or misleading as to a material fact pertaining to
qualification; (iii) has been, or has any director, officer, general partner,
stockholder, limited partner or other person who has a financial or equity
interest of 5% or greater in the applicant who has been convicted of certain
crimes, including the service of a sentence upon conviction for a felony in a
correctional facility, city or county jail, or community correctional facility
or under the state board of parole or any probation department within ten years
prior to the date of the application, gaming related offenses, theft by
deception or other crimes involving fraud or misrepresentation, is under current
prosecution for such crimes (license determination may be deferred during such
pendency), is a career offender or a member or associate of a career offender
cartel or is a professional gambler; or (iv) has refused to cooperate with any
state or federal body investigating organized crime, official corruption or
gaming offenses.
If the Colorado Commission determines that a person or entity is unsuitable
to own interests in Lady Luck Central City, whether directly or indirectly
through the Company, then the Company and Lady Luck Central City may be
sanctioned, which may include the loss by Lady Luck Central City and the Company
of their approvals and licenses.
In addition to its authority to deny an application for a license or
suitability, the Colorado Commission has jurisdiction to disapprove a change in
corporate position of a licensee and may have such authority with respect to any
entity which is required to be found suitable by the Colorado Commission. The
Colorado Commission has the power to require Lady Luck Central City or 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 whom the authorities find unsuitable to act in such capacities,
and may have such power with respect to any entity which is required to be found
suitable.
Lady Luck Central City must meet certain architectural requirements, fire
safety standards and standards for access for disabled persons. Lady Luck
Central City also must not exceed certain gaming square footage requirements as
a total of each floor and the full building. Lady Luck Central City may operate
only between 8:00 a.m. to 2:00 a.m., and may permit only individuals 21 years or
older to gamble in the casino. It may permit slot machines, blackjack and poker,
with a maximum single bet of $5.00. Lady Luck Central City may not provide
credit to its gaming patrons.
The Colorado Constitution permits a gaming tax of up to 40% on adjusted
gross gaming proceeds. The Colorado Commission has set a gaming tax rate of 2%
on adjusted gross gaming proceeds of up to and including $2 million, 4% over $2
million up to and including $4 million, 14% over $4 million up to and including
$5 million, 18% over $5 million up to and including $10 million, and 20% in
excess of $10 million. The Colorado Commission also has imposed an annual device
fee of $100 per gaming device. The Colorado Commission may revise the gaming tax
rate and device fee from time to time. Central City has imposed an annual device
fee of $1,165 per gaming device and may revise the same from time to time.
The sale of alcoholic beverages is subject to licensing, control and
regulation by the Colorado Liquor Agencies. All persons who directly or
indirectly own 10% or more of Lady Luck Central City, through their ownership of
the Company, must file applications and possibly be investigated by the Colorado
Liquor Agencies. The Liquor Agencies also may investigate those persons who,
directly or indirectly, loan money to or have any financial interest in liquor
licensees. All licenses are revocable and not transferable. The Liquor Agencies
have the full power to limit, condition, suspend or revoke any such license and
any such disciplinary action could (and revocation would) have a material
adverse effect upon the operations of the Company. Lady Luck Central City holds
a Retail Gaming Tavern liquor license. No person with an interest in the Company
can have an interest in a liquor licensee which holds anything other than a
Retail Gaming Tavern liquor license, and no person can have an interest in more
than three Retail Gaming Tavern liquor licenses.
Iowa Gaming Regulations
In 1989, the State of Iowa legalized riverboat gaming on the Mississippi
River and certain other waterways located in Iowa. The legislation authorized
the granting of licenses to not-for-profit corporations which, in turn, are
permitted to enter into operating agreements with qualified persons who also
actually conduct riverboat gaming operations. Such operators must likewise be
approved and licensed by the Iowa Racing and Gaming Commission (the "Iowa Gaming
Commission").
In 1994, Iowa amended the enabling legislation removing several previous
restrictions including loss and wager limits and restrictions on the amount of
space on a vessel that may be utilized for gaming. Current law permits gaming
licensees to offer unlimited stakes gaming on games approved by the Iowa Gaming
Commission on a 24-hour basis. Dockside casino gaming is authorized by the Iowa
Gaming Commission although the licensed vessel is required to conduct at least
one 2-hour excursion cruise each day for at least 100 days during the excursion
season. The legal age for gaming is 21.
On August 11, 1994 the Riverbend Regional Authority, a not-for-profit
corporation organized for the purpose of facilitating riverboat gaming in
Bettendorf, Iowa (the "Authority"), entered into an agreement (the "Operator's
Contract") with the Bettendorf Joint Venture authorizing the Bettendorf Joint
Venture to operate riverboat gaming operations in Bettendorf. The initial term
of the Operator's Contract is for three years. The Bettendorf Joint Venture has
the right to renew the contract for succeeding three year periods as long as
Scott County voters approve gaming in the jurisdiction. The enabling legislation
gives each county the opportunity to hold a referendum on whether to allow
casino gaming within its boundaries. Such a referendum was passed on April 7,
1994 with 80% voting in favor of passage and casino gaming was thereby
authorized in Bettendorf for a period of nine years from the issuance date of
the license. Another referendum cannot be held until 2002 and if approved,
subsequent referenda will occur at 8 year intervals. Under the Operator's
Contract, the Bettendorf Joint Venture pays the Authority $1 per passenger for
the first 500,000 passengers in any year and $1.50 for each passenger in excess
of 500,000. The per passenger admission charge is increased by 1/2 of the
Consumer Price Index for each three year extension period of the Operator's
Contract. The Bettendorf Joint Venture also pays the Authority an amount equal
to 2% of the net gaming win in excess of $35,000,000 and less than $44,000,000
in any year.
Further, pursuant to statute, the Bettendorf Joint Venture must pay a fee
to the City equal to $.50 per passenger. On March 6, 1997, the Iowa Gaming
Commission authorized the renewal of the Bettendorf Joint Venture's gaming
license. The license is for an additional term of one year commencing April 1,
1997, is not transferrable and will need to be renewed in March of 1998 and at
the end of each renewal period thereafter.
The ownership and operation of gaming facilities in Iowa are subject to
extensive state laws, regulations of the Iowa Gaming Commission and various
county and municipal ordinances (collectively, the "Iowa Gaming Laws"),
concerning, among other things, the responsibility, financial stability and
character of gaming operators and persons financially interested or involved in
gaming operations. Iowa Gaming Laws seek to (i) prevent unsavory or unsuitable
persons from having direct or indirect involvement with gaming at any time or in
any capacity; (ii) establish and maintain responsible accounting practices and
procedures; (iii) maintain effective control over the financial practices of
licensees (including the establishment of minimum procedures for internal fiscal
affairs, the safeguarding of assets and revenues, the provision of reliable
record keeping and the filing of periodic reports with the Iowa Gaming
Commission); (iv) prevent cheating and fraudulent practices; and (v) provide a
source of state and local revenues through taxation and licensing fees. Changes
in such laws, regulations and procedures could have a material adverse effect on
the Bettendorf Joint Venture's gaming operations.
Gaming licenses granted to individuals must be renewed every year, and
licensing authorities have broad discretion with regard to such renewals.
Licenses are not transferable. The Bettendorf Joint Venture must submit detailed
financial and operating reports to the Iowa Gaming Commission. Any contract in
excess of $50,000 must be submitted to and approved by the Iowa Gaming
Commission.
Officers, directors, managers and certain key employees of the Bettendorf
Joint Venture are required to be licensed by the Iowa Gaming Commission.
Employees associated with gaming must obtain work permits which are subject to
immediate suspension under certain circumstances. In addition, anyone having a
material relationship or involvement with the Bettendorf Joint Venture may be
required to be found suitable or to be licensed, in which case those persons
would be required to pay the costs and fees of the Iowa Gaming Commission in
connection with the investigation. An application for a license may be denied
for any cause deemed reasonable by the Iowa Gaming Commission. In addition to
its authority to deny an application for license, the Iowa Gaming Commission has
jurisdiction to disapprove a change in position by such officers or key
employees and the power to require the Bettendorf Joint Venture to suspend or
dismiss officers, directors or other key employees or sever relationships with
other persons who refuse to file appropriate applications or whom the Iowa
Gaming Commission finds unsuitable to act in such capacities.
The Iowa Gaming Commission may revoke a gaming license if, among other
conditions, the licensee: (i) has been suspended from operating a gaming
operation in another jurisdiction by a board or commission of that jurisdiction;
(ii) has failed to demonstrate financial responsibility sufficient to meet
adequately the requirements of the gaming enterprise; (iii) is not the true
owner of the enterprise; (iv) has failed to disclose ownership of other persons
in the enterprise; (v) is a corporation 10% of the stock of which is subject to
a contract or option to purchase at any time during the period for which the
license was issued, unless the contract or option was disclosed to the Iowa
Gaming Commission and the Iowa Gaming Commission approved the sale or transfer
during the period of the license; (vi) knowingly makes a false statement of a
material fact to the Iowa Gaming Commission; (vii) fails to meet a monetary
obligation in connection with an excursion gaming boat; (viii) pleads guilty to,
or is convicted of a felony; (ix) loans to any person, money or other thing of
value for the purpose of permitting that person to wager on any game of chance;
(x) is delinquent in the payment of property taxes or other taxes or fees or a
payment of any other contractual obligation or debt due or owed to a city or
county; or (xi) assigns, grants or turns over to another person the operation of
a licensed excursion boat (this provision does not prohibit assignment of a
management contract approved by the Iowa Gaming Commission) or permits another
person to have a share of the money received for admission to the excursion
boat.
If it were determined that gaming laws were violated by a licensee, the
gaming licenses held by such licensee could be limited, made conditional,
suspended or revoked. In addition, the Bettendorf Joint Venture and the persons
involved could be subject to substantial fines for each separate violation of
the Iowa Gaming Laws at the discretion of the Iowa Gaming Commission.
Limitations, conditioning or suspension of any gaming license could (and
revocation of any gaming license would) have a material adverse effect on the
operations of the Bettendorf Joint Venture.
The Iowa Gaming Commission may also require any individual who has a
material relationship with the Bettendorf Joint Venture to be investigated and
licensed or found suitable. Any person who acquires 5% or more of the Bettendorf
Joint Venture's equity securities must be approved by the Iowa Gaming Commission
prior to such acquisition. The applicant stockholder is required to pay all
costs of such investigation.
Gaming taxes approximating 20% of the adjusted gross receipts will be
payable by the Bettendorf Joint Venture on its operations to the State of Iowa.
In addition, there are costs which include a $50,000 initial application fee,
yearly operations fees and all costs associated with monitoring and enforcement
by the Iowa Gaming Commission and the Iowa Department of Criminal Investigation.
If required by any gaming authority or if the Company reasonably determines
that ownership of any of the Company's securities, including the Notes, by any
person or entity will either materially preclude, interfere with, threaten or
delay the issuance of, or jeopardize the maintenance and existence of any gaming
or liquor license, or result in the imposition of significantly burdensome terms
or conditions on such license, the Indenture provides that the Company will have
certain rights to redeem such Notes or require the sale of such Notes.
Missouri Gaming Regulations
Gaming was originally authorized in the state of Missouri on November 3,
1992, although no governmental action was taken to enforce or implement the
original law. On April 29, 1993, Missouri enacted the Missouri Gaming Law,
replacing the original law. Substantial amendments to the Missouri Gaming Law
were passed effective May 20, 1994. The Missouri Gaming Law established the
Missouri Gaming Commission, which is responsible for the licensing and
regulation of riverboat gaming in Missouri.
The ownership and operation of riverboat gaming facilities in Missouri are
subject to extensive ongoing state and local regulation to which the Company and
certain of its officers and employees will be subject, including licensure. The
Company and certain of its officers and employees will be required to undergo
extensive application procedures in order to obtain the requisite licenses and
permits to operate. Such licenses are to be issued through application with the
Missouri Gaming Commission, which will require, among other things,
(a) investigations into applicants' character, financial responsibility and
experience qualifications and (b) that applicants furnish (i) an affirmative
action plan for the hiring and training of minorities and women; and (ii) an
economic development or impact report. The Company's license fees will be at
least $50,000 for the application, with an annual fee of at least $25,000
thereafter. The Company's licenses will last for a term of two years except that
the first license and subsequent renewal granted to each gaming operator are to
be for terms of one year. There can be no assurance that the Company's
application for a license to operate a riverboat in Missouri or such other
requisite applications will be approved in a timely manner or at all. In
addition, every individual participating in gaming operations in any capacity
must obtain an occupational license. There are two levels of such licenses. The
first is level one and includes the audit manager, casino manager, chief of
security, controller, electronic data processing manager, slot department
manager, surveillance manager, assistant manager, "key person" and any other
person or entity the Missouri Gaming Commission directs to file a level one
application. A "key person" includes, but is not limited to, an officer,
director or holder of any direct or indirect legal or beneficial interest whose
combined direct, indirect or attributed interest is 5% or more in a business
entity or anyone so designated by the Missouri Gaming Commission. A level two
license would include all other employees. The application fee for a level one
license is $1,000 and for a level two license is $75. The licenses must be
renewed annually and the renewal fee is $50 for either license. The Missouri
Gaming Commission may revoke or suspend gaming licenses and impose other
penalties for violation of the Missouri Gaming Law and the rules and regulations
which may be promulgated thereunder. Penalties may include forfeiture of all
gaming equipment used for improper gaming and fines of up to three times an
operator's highest daily gross adjusted receipts during the preceding twelve
months. Also, the Missouri Regulations provide that any transfer of a 5% or more
direct or indirect ownership interest in a publicly traded gaming licensee can
be disapproved by the Missouri Gaming Commission.
The Missouri Gaming Law imposes operational requirements on riverboat
operators, including a charge of two dollars per gaming customer that licensees
must pay to the Missouri Gaming Commission, a minimum payout requirement of 80%
for gambling devices, a 20% tax on adjusted gross receipts, prohibitions against
lending to gaming customers (except for the use of credit cards and cashing
checks) and a requirement that each licensee reimburse the Missouri Gaming
Commission for all costs of any Missouri Gaming Commission staff necessary to
protect the public on the licensee's boat. Licensees must also submit audited
quarterly financial reports to the Missouri Gaming Commission and pay the
associated auditing fees. The Missouri Gaming Law provides for a loss limit of
$500 per person per excursion. Although the Missouri Gaming Law currently
provides no limit on the amount of riverboat space that may be used for gaming,
the Missouri Gaming Commission is empowered to impose such space limitations
through the adoption of rules and regulations. Additionally, United States Coast
Guard safety regulations could affect the amount of riverboat space that may be
devoted to gaming. The Missouri Gaming Commission will ultimately determine the
location, number and type of excursion boats in any city or county which has
approved riverboat gambling, such city or county approval being a prerequisite
to riverboat gambling in such city or county.
Any city or county which has recommended riverboat gambling is to submit a
plan outlining, inter alia, the number of boats to be licensed, the recommended
licensee(s), and the community's economic development or impact and affirmative
action plan. By regulation, the plan is to be submitted within 30 days after the
filing of an application for a license in that city or county. With respect to
the availability of dockside gaming, the Missouri Gaming Commission is empowered
to determine on a city and county-specific basis where such gaming is
appropriate and shall be permitted. All other boats must cruise unless
authorized by the Missouri Gaming Commission for continuous dockside gaming. The
Missouri Gaming Law also includes requirements as to the form of riverboats,
which must resemble Missouri's or the local city's or county's riverboat history
to the extent practicable and include certain non-gaming amenities. An excursion
gambling boat is now defined as a boat, ferry or other floating facility. The
Missouri Gaming Law also imposes annual licensing requirements on suppliers of
gaming equipment or other suppliers to riverboat operators.
There can be no assurance that gaming will continue to be permitted in
Missouri. The Missouri Gaming Law could be repealed or modified by Missouri's
legislative process or by its judiciary.
Non-Gaming Regulations
The Company is subject to certain federal, state and local environmental
protection, health and safety laws, regulations and ordinances that apply to
businesses generally, such as the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, CERCLA, the Occupational Safety and
Health Act, and similar state statutes. The Colorado casino operations of Lady
Luck Central City are located generally within the Central City/Clear Creek
Superfund Site as designated by the EPA pursuant to CERCLA. The Superfund 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 cleanup by the EPA and the State of Colorado. CERCLA requires
cleanup 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 ordering Potentially Responsible Parties
("PRP's") to clean up or contribute to the cleanup of a Superfund site. PRP's
are broadly defined under CERCLA, and include past and present owners and
operators of a site. Courts have interpreted CERCLA to impose strict, joint and
several liability upon all persons liable for response costs.
Lady Luck Central City is not included within any of the specific areas
within the Superfund Site currently identified for investigation or remediation.
In the course of developing the Lady Luck Central City facility, the former
owner's contractors conducted investigations at the site in accordance with
requirements of the governmental authorities as a prerequisite to obtaining
certain necessary development permits. The investigations have been completed
and the requisite permits issued. Nonetheless, there is the potential that the
EPA or other governmental authorities could broaden their investigations and
identify additional areas within the Superfund Site, including the Company's
site, for cleanup. If Lady Luck Central City were included in the EPA's
investigation and designated as an additional area of concern within the
Superfund Site, the Company could be identified as a PRP and any liability
related thereto could have a material adverse effect on the Company.
The Vicksburg Site has been used as a bulk petroleum storage facility since
the early 1950's, and contained above ground storage tanks and barge and truck
loading docks associated with that operation. Known releases of petroleum
products from three of the seven tanks have occurred since 1986, along with
other small releases at various locations on site. The Subsurface Assessment of
the environmental condition of the site by an outside environmental consultant
indicated that certain of the soils at the site were contaminated with petroleum
hydrocarbons and associated volatile organic compounds, and that such
contamination was present in significant concentrations in some locations on
site.
Remediation efforts at the Vicksburg Site are complete. Under the terms of
the acquisition of the Vicksburg Site, the purchase price for the Vicksburg Site
of $4.5 million was placed in an escrow account, with all costs incurred to
remediate environmental conditions on site paid out of such escrow account (with
any funds remaining after remediation going to the seller of the Vicksburg
Site). On February 21, 1996, the Mississippi Department of Environmental Quality
determined that the environmental remediation conducted by the seller meets all
federal and state standards, and has certified that no further action is
required. The entire remediation cost was paid out of the escrow fund, and the
Company did not incur any of these costs. However, no assurance can be provided
that the Mississippi Department of Environmental Quality or the Federal
Environmental Protection Agency will not alter target cleanup levels in the
future, resulting in additional cleanup requirements. This would expose the
Company to additional liability as the owner of the property, and could result
in a material delay of the construction of new facilities on-site.
In the course of conducting the environmental investigation at the proposed
site for Lady Luck Gulfport, the Company identified certain contamination at the
site. Pursuant to an administrative order issued by the Mississippi Department
of Environmental Quality, the Company undertook remedial activities, including
soil remediation and the installation of groundwater monitoring wells. No
additional remediation is currently required, although some additional soil
remediation may be required in the course of obtaining a building permit.
Although there can be no assurances, the Company believes that the cost of such
additional soil remediation, if any, will not be material.
Although the Company knows of no other pre-existing conditions at the
intended sites for the Development or the Pre- development Stage Projects that
will result in any material environmental liability or delay, there can be no
assurance that pre-existing conditions will not be discovered and result in
material liability or delay to the Company.
Other than those described, the Company has not made, and does not
anticipate making, material expenditures with respect to such environmental
protection, and health and safety laws and regulations. However, the compliance
or cleanup costs associated with such laws, regulations and ordinances may
result in future additional costs to the Company's operations.
ITEM 2. PROPERTIES.
The Company has various property leases and options to lease property and
owns barges upon which dockside casinos have been or are anticipated to be
constructed. Additionally, LLB owns two parcels of property at the site where
Lady Luck Biloxi is located and leases several other properties at such site;
LLV owns certain property (including the Vicksburg Site) where the Vicksburg
Project would be located. The Lady Luck Natchez leases include the Silver Land
lease, the Old Ferry Ramp lease and the Toll Plaza lease, all in Natchez. LLM
also owns the property where the River Park is located. In addition, MLI has
entered into the Coahoma County lease and purchased the leasehold associated
with the property where the Riverbluff is located; LLG has entered into the
Gulfport Leases; LLK has entered into an option to lease property in Jefferson
County, Missouri; and the Company has entered options to lease property in Scott
City, Missouri. All rental payments under these leases, other than rental
payments under the Coahoma County leases, are calculated on a fixed base rent
adjusted in accordance with increases in the Consumer Price Index up to a
maximum of 3% in any given year. Rental payments under the Coahoma County leases
are 5.5% of the annual Gross Revenues (as defined in such leases). The Company
owns nine barges, one of which is in Natchez, one of which is in Biloxi, three
of which are intended for use in the construction of the Vicksburg Project and
four of which are in Coahoma County. The Company also owns a cruising gaming
vessel which is being leased to the Bettendorf Joint Venture and has
approximately $6.0 million invested in a partially finished cruising vessel
which is currently intended to be used by LLK. GCI owns the property on which
Lady Luck Central City is located and leases (and has an obligation to acquire)
property where Lady Luck Central City has a parking lot. Certain of the
Company's properties are encumbered by mortgages and other security agreements
for the benefit of holders of the Notes. Additionally, the Company has granted
liens on certain of its owned and leased properties to the sellers or lessors of
such properties, including the property where Lady Luck Central City is located,
a plot of land adjacent to Lady Luck Biloxi, the property where the River Park
is located and purchased the leasehold interest where the Riverbluff is located.
The Company leases its corporate offices in Las Vegas, Nevada pursuant to the
New Marketing Agreements. See "Business -- Management Agreements".
ITEM 3. LEGAL PROCEEDINGS.
The Company has been named as a defendant in a purported shareholder class
action lawsuit alleging violations by the Company of the Securities Act of 1933
and the Securities Exchange Act of 1934 for alleged material misrepresentations
and omissions in connection with the Company's 1993 prospectus and initial
public offering of Common Stock. The complaint seeks, inter alia, injunctive
relief, rescission and unspecified compensatory damages. In addition to the
Company, the complaint also names as defendants Andrew H. Tompkins, Chairman and
Chief Executive Officer of LLGC, Alain Uboldi, Director and Chief Operating
Officer of LLGC, Michael Hlavsa, the former Chief Financial Officer of LLGC,
Bear Stearns & Co., Inc. and Oppenheimer & Co., Inc., who acted as lead
underwriters for the initial public offering. The Company has retained outside
counsel to respond to the complaint and while the outcome of this matter cannot
presently be determined, the Company believes based in part on advice of
counsel, that it has meritorious defenses.
The Company and certain of its joint venture partners (the "Defendants")
are defendants in a lawsuit brought by the country of Greece and its Minister of
Tourism before the Greek Multi-Member Court of First Instance. The action
alleges that the Defendants failed to make certain payments in connection with
the gaming license bid process for Patras, Greece. The payments the Company is
alleged to have been required to make aggregate approximately 2.1 billion
drachma (which was approximately $7.8 million as of March 5, 1997 based upon
published exchange rates). Although it is difficult to determine the damages
being sought from the lawsuit, the action may seek damages up to such aggregate
amount. The Company's Greek counsel is defending the lawsuit and in management's
opinion, the ultimate outcome of this matter is not presently known.
Additionally, a lawyer and a consultant which were allegedly retained by
the Company in connection with the Company's bid for a gaming license in Greece
recently threatened litigation against the Company. On or about September 24,
1996, the Company and the lawyer and consultant reached an agreement whereby in
exchange for certain consideration mutual releases were executed.
Also, a Greek architect filed an action against the Company alleging that
he was retained by the Company to provide professional services with respect to
a casino in Loutraki, Greece. The plaintiff in such action sought damages of
approximately $800,000. On July 29, 1996, the Company's Greek counsel was served
with a decision by the Athens Court of First Instance in such matter. The Greek
Court entered judgement against the Company in the amount of approximately 87.1
million drachma (which was approximately $325,000 as of March 5, 1997 based upon
published rates). The Company intends to appeal the Court's decision and has
been informed by its Greek counsel that it has meritorious grounds to prosecute
such appeal.
On November 5, 1996, the United States Bankruptcy Court for the Northern
District of Mississippi dismissed a lawsuit which had been brought by Superior
Boat Works, Inc. ("Superior") against LLM on or about September 23, 1993.
Superior had previously done construction work for LLM on its Natchez barge
("Lady Luck Natchez"), as well as some minor preparatory work on one other barge
of the Company. Such proceeding alleged damages of approximately $47,000,000, of
which approximately $3,400,000 was alleged for additional construction work on
Lady Luck Natchez and the remaining amount was alleged for unjust enrichment,
for causing the bankruptcy of Superior and for future work Superior expected to
perform for the Company. Superior has appealed the decision to dismiss the
action. The Company, based in part on the advice of its counsel, believes that
it has meritorious defenses and does not believe that the appeal of the decision
will have a material adverse effect on the Company's financial condition or
results of operations.
In addition, from time to time the Company is a party to legal proceedings
arising in the ordinary course of business. The Company does not believe that
the results of such legal proceedings will have a material adverse impact on its
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted to a vote of security-holders of LLGC during the
fourth quarter of 1996.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
LLGC's common stock (symbol "LUCK") trades on the Nasdaq National Market
tier of the Nasdaq Stock Market and is quoted in the Wall Street Journal and
other newspapers. The following table sets forth the high and low sale prices of
the Common Stock for each quarter during the preceding two years, as reported by
Nasdaq.
<TABLE>
<CAPTION>
Nasdaq Daily Sales Price
<S> <C> <C>
High Low
- --------------------------------------------------------------------------------------- --------------------- --------------------
1995
1st quarter 2-13/16 1-7/8
2nd quarter 2-3/16 1-1/2
3rd quarter 2-3/8 1-1/2
4th quarter 2-1/2 1-5/8
1996
1st quarter 2-7/32 1-5/8
2nd quarter 4-5/8 2
3rd quarter 4-5/16 2-7/16
4th quarter 3 1-3/4
As of March 12, 1997, LLGC had approximately 535 holders of record of its common stock.
LLGC did not pay any cash dividends on its common stock in 1995 or 1996 and has no intention of paying cash
dividends on its common stock in the foreseeable future. In addition, the Indenture covering the 2001 Notes (defined below
in Part II, Item 8) provides restrictions on the Company's ability to pay dividends on its common stock.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA.
<S> <C> <C> <C> <C> <C>
Years ended December 31, 1996 1995 1994 1993 1992
- --------------------------------------------------- ------------- ------------- -------------- ------------- ------------
Thousands of dollars
Gross revenues $ 174,234 $ 158,411 $ 125,134 $ 81,124 $ -
Promotional allowances (12,527) (8,821) (7,979) (4,313) -
Net revenues 161,707 149,590 117,155 76,811 -
Casino expenses 56,806 49,703 41,859 21,492 -
Food and beverage costs and expenses 6,928 8,582 7,215 2,982 -
Hotel expenses 1,925 1,667 652 - -
Other operating expenses 282 310 574 194 -
Selling, general and administrative 53,786 49,539 51,926 21,722 370
Related party management fees 2,317 5,520 2,471 2,894 -
Depreciation and amortization 11,289 9,694 7,067 2,478 -
Settlement of a Claim 1,100 - - - -
Project development cost write-downs and reserves 404 509 15,635 - -
Pre-opening expense 247 - 2,970 6,769 -
Abandonment loss - - 9,344 - -
Operating income (loss) 26,623 24,066 (22,558) 18,280 (370)
Other (expense) (20,415) (19,204) (15,393) (2,729) -
Income (loss) before income tax and extraordinary
items 6,208 4,862 (37,951) 15,551 (370)
Net income (loss) 6,139 6,718 (35,665) 3,810 (370)
Net cash provided by (used in) operating activities 13,492 17,083 8,590 22,935 (451)
- --------------------------------------------------- ------------- ------------- -------------- ------------- ------------
At December 31, 1996, 1995, 1994, 1993 and 1992
Cash and cash equivalents $ 15,490 $ 22,148 $ 28,914 $ 18,351 $ 25
Restricted cash - 8,858 7,847 - 6
Current assets 20,584 35,219 44,679 22,327 112
Property and equipment, net 173,119 155,664 170,345 91,116 6,899
Total assets 223,718 217,281 226,963 122,975 9,407
Current liabilities 19,892 23,702 216,954 42,200 2,123
Total liabilities 200,973 200,675 221,137 85,369 2,123
Series A mandatory cumulative redeemable preferred
stock 16,430 14,669 13,097 11,693 -
Stockholders' equity (deficit) 6,315 1,937 (7,271) 25,913 7,284
Working capital 692 11,517 (172,275) (19,873) (2,011)
- --------------------------------------------------- ------------- ------------- -------------- ------------- -------------
<PAGE>
Years ended December 31, 1996 1995 1994 1993 1992
- ---------------------------------------------------- ------------- ------------- --------------- ------------- -------------
Thousands of dollars, except per share amounts and
employees
Selected Data
Net Income (loss) per share
Before extraordinary item $ 0.21 $ 0.15 $ (1.45) $ 0.43 $ (0.02)
Extraordinary item - 0.08 0.04 (0.28) -
Applicable to common stockholders 0.15 0.18 (1.47) 0.12 -
Pro Forma net income (unaudited)
Pro Forma earnings per share (unaudited) - - - 0.11 0.01
Shares used in computing net income per share
(in thousands) 29,285 28,952 25,300 24,664 24,286
Shares outstanding at year end (in thousands) 29,285 29,285 27,285 24,793 -
Cash dividends declared per common share - - - - -
Common Stock - High $ 4.63 $ 2.81 $ 13.75 $ 19.00 $ -
Common Stock - Low $ 1.63 $ 1.50 $ 2.25 $ 7.25 $ -
Common Stock - Year end $ 1.88 $ 1.63 $ 2.59 $ 10.75 $ -
Number of employees 2,950 2,850 2,100 2,330 5
- -------------------------------------------------- ------------- -------------- --------------- ------------- -------------
Reference is made to Part I, Item 3 - Legal Proceedings, which contains information regarding uncertainties which may have
a material adverse effect on the Company's future financial condition and results of operations.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All statements contained herein that are not historical facts, including
but not limited to, statements regarding the Company's current business
strategy, the Company's prospective joint ventures, asset sales and expansions
of existing projects, and the Company's plans for future development and
operations, are based upon current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties.
Generally, the words "anticipates," "believes," "estimates," "expects," and
similar expressions as they relate to the Company and its management are
intended to identify forward looking statements. Actual results may differ
materially. Among the factors that could cause actual results to differ
materially are the following: the availability of sufficient capital to finance
the Company's business plan on terms satisfactory to the Company; competitive
factors, such as legalization of gaming in jurisdictions from which the Company
draws significant numbers of patrons and an increase in the number of casinos
serving the markets in which the Company's casinos are located; changes in
labor, equipment and capital costs; the ability of the Company to consummate its
contemplated joint ventures on terms satisfactory to the Company and to obtain
necessary regulatory approvals therefor; changes in regulations affecting the
gaming industry; the ability of the Company to comply with the Indenture as
supplemented by the Amendments and Waivers; future acquisitions or strategic
partnerships; general business and economic conditions; and other factors
described from time to time in the Company's reports filed with the Securities
and Exchange Commission. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which statements are made
pursuant to the Private Litigation Reform Act of 1995 and, as such, speak only
as of the date made.
Results of Operations
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company's gross revenues increased from $158.4 million in 1995 to
$174.2 million during 1996, an increase of $15.8 million or 10%. The opening of
Country Casino adjacent to Lady Luck Rhythm & Blues in Coahoma County,
Mississippi, the acquisition of the 147-room River Park in Natchez, Mississippi,
the opening of the casino at the Company's joint venture with Bally's in
Robinsonville, Mississippi, and the opening of Lady Luck Bettendorf, in
Bettendorf, Iowa, improvements in its operations and income from leasing a
gaming vessel and certain equipment to Lady Luck Bettendorf were primarily
responsible for this increase in the Company's 1996 gross revenues, over the
prior year.
Lady Luck Rhythm & Blues generated $7.6 million of the Company's overall
$15.8 million increase in gross revenues. A 43% increase in the average number
of slot machines partially offset by a 25% decrease in the average daily net win
per slot machine accounted for $5.3 million of Lady Luck Rhythm & Blues'
increase in gross revenues. Country Casino, which opened May 21, 1996, increased
the average number of slot machines in operation and decreased the average daily
net win per slot machine significantly. In addition, increased competition from
the casinos in Tunica, Mississippi, during the second half of 1996 had a
significant adverse effect on average daily net win per slot machine. These
changes, when analyzed quarterly, indicate, for the first quarter of 1996, an
approximately consistent average daily net win per slot machine while the
average number of slot machines in operation increased by 14%; and for the nine
months ended December 31, 1996, a 52% increase in the average number of slot
machines in operation partially offset by a 30% decrease in the average daily
net win per slot machine. Increases in food and beverage, hotel and other
revenues offset partially by a 5% decrease in table and card games revenues
accounted for the balance of the increase in gross revenues at Lady Luck Rhythm
& Blues.
LLM's gross revenues increased $2.4 million in 1996 compared to 1995. LLM
acquired and took over operation of the 147-room Best Western River Park in
Natchez, Mississippi on April 15, 1996. During the period from April 15, 1996
through December 31, 1996, the hotel's gross room revenues were $1.3 million.
The remainder of LLM's increase in gross revenues was primarily from increases
in food and beverage operations at the casino in addition to the revenues from
food and beverage sold at the hotel site.
The Bally's Joint Venture, which was formed March 31, 1995, included only
hotel operations until the December 18, 1995 opening of the casino. During 1996,
the Company's equity in net income of unconsolidated affiliates from the Bally's
Joint Venture was $0.7 million, after deducting the Company's share of
pre-opening expenses of $1.1 million, a net increase of $1.6 million over the
Company's $0.9 million equity in net loss of unconsolidated affiliates in the
nine months ended December 31, 1995.
During 1996, the Company's equity in net income of unconsolidated
affiliates from the Bettendorf Joint Venture was $3.1 million, an increase of
$3.3 million over the Company's $0.2 million equity in net loss of
unconsolidated affiliates in 1995. The Company's $0.2 million loss for 1995
reflects the deduction of the Company's share of pre-opening expenses of $1.2
million upon commencement of operations on April 21, 1995 and the completion of
the outlet mall later that year. In addition, for the leasing of a gaming vessel
and equipment to the Bettendorf Joint Venture, the Company recognized revenue of
$3.8 million, a $1.3 million increase over the $2.5 million of revenue
recognized during the period from commencement of operations through December
31, 1995.
Casino operating expenses as a percentage of casino revenues increased from
36% in 1995 to 39% in 1996, primarily due to the following: (i) a 1.0% increase
in cash incentives to slot machine players in relation to slot machine net
revenues, (ii) a 1.3% increase in the cost of complimentary rooms, food and
beverage furnished to casino customers in relation to casino revenues, (iii) an
8% decrease in table and card games net revenues and a 3% increase in related
expenses exclusive of complimentaries, and (iv) an increase in the local gaming
tax rate paid by LLM.
Food and beverage gross revenues increased from $14.6 million in 1995 to
$16.9 million in 1996, an increase of $2.3 million or 16%, including a 37%
increase in complimentary food and beverage revenues. This increase was also due
to higher customer counts and additional outlets at the Lady Luck Rhythm &
Blues/Country Casino complex, improvements at Lady Luck Natchez and the addition
of outlets at the River Park, and was offset partially by changes in outlets at
Lady Luck Biloxi. Food and beverage costs and expenses, prior to reclassifying
the cost of complimentaries, as a percentage of related revenues declined from
102% for 1995 to 91% for 1996, continuing a trend of lowering costs of sales and
labor expenses as a percentage of food and beverage revenues which was partially
offset by the costs associated with outlet changes at Lady Luck Biloxi.
Hotel total gross room revenues and operating results between periods are
not comparable because ORD's hotel operations, which commenced August 25, 1994,
were contributed to the Bally's Joint Venture effective March 31, 1995. In
addition, LLM purchased the River Park on April 15, 1996 and MLI acquired the
120-room Riverbluff in Helena, Arkansas on July 3, 1996. Notwithstanding the
lack of comparability of total gross room revenues, gross room revenues at MLI's
173-room hotel adjacent to Lady Luck Rhythm & Blues increased 7% in 1996
compared to 1995.
Despite an increase in selling, general and administrative expenses from
$49.5 million in 1995 to $53.8 million in 1996, they remained constant as a
percentage of gross revenues for both 1995 and 1996 at 31%. The $4.3 million
increase in expense is primarily due to the following: (i) an increase of $2.2
million for marketing expenses primarily related to the Country Casino and the
Pavilion, (ii) $2.1 million for the BRDC Obligation and Management/License Fee
Overhead Costs in connection with, and, effective January 1, 1996, the New
Marketing Agreements,(iii) a $1.3 million increase in rent, utilities and other
expenses related to the new Country Casino, Pavilion, River Park and Riverbluff
operations, and (iv) $0.2 million due to reserving the cost of demolishing
certain pre-existing structures at the Vicksburg site during 1996, offset
partially by: (i) a $0.6 million reduction in fees and costs, from $1.7 million
in 1995 to $1.1 million in 1996, related to the solicitation of the amendments
and waivers of continuing defaults (the "Amendments and Waivers") under the
Indenture relating to the First Mortgage Notes due 2001 issued by the Company
(the "2001 Notes") which was completed in March 1996, and (ii) a $0.6 million
reduction in development costs due to focusing development efforts.
Related party management/license fees decreased from $5.5 million during
1995 to $2.3 million during 1996, a decrease of $3.2 million or 58%. This
decrease was due to the Company entering into the New Marketing Agreements in
replacement of the Old Management Agreements as described above offset partially
by certain abatements totaling $0.7 million deducted in 1996 from the
management/license fees the Company received from the Bettendorf Joint Venture.
In addition, under the New Marketing Agreements, the BRDC Obligation and
Management/License Fee Overhead Costs totaling $2.1 million are included in
selling, general and administrative expense for 1996, while, in 1995, the cost
of these items was the responsibility of related parties, wholly-owned by Mr.
Tompkins, pursuant to the Old Management Agreements.
Operating income was $26.6 million and $24.1 million for 1996 and 1995,
respectively. This increase is due to the following: (i) a $5.0 million increase
in equity in net income of unconsolidated affiliates, (ii) reduced related party
management/license fees, (iii) increased food and beverage revenues and
operating margins, (iv) consistent selling, general and administrative expenses
as a percentage of gross revenues on an expanded revenue base, and (iv) the
acquisition of two additional hotel operations, offset partially by: (i)
increased casino operating expenses as a percentage of casino revenues, and (ii)
a $1.1 million settlement of a claim.
Interest expense, net of capitalized interest, increased from $20.1 million
in 1995 to $22.2 in 1996, an increase of $2.1 million or 10%. This increase is
primarily attributable to a 1 3/8% increase in the interest rate on the 2001
Notes offset partially by a $6.5 million higher balance outstanding of 2001
Notes for a portion of 1995.
The net income applicable to common stockholders was $5.1 million or $0.18
per share in 1995 compared with net income applicable to common stockholders of
$4.4 million or $0.15 per share for 1996. This decrease was primarily due to
increases in interest expense and preferred stock dividends offset partially by
increased operating income as described above. In addition, net income
applicable to common stockholders for 1995 also included an extraordinary gain
of $2.3 million or $0.08 per share resulting from an exchange of common stock
for indebtedness.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
The Company's gross revenues rose from $125.1 million in 1994 to $158.4
million in 1995, a 27% increase. The increase in gross revenues of $33.3 million
is primarily from the operations of Lady Luck Rhythm & Blues which generated
$87.6 million in gross revenues for 1995, an increase of $50.6 million over the
$37.0 million generated by Lady Luck Rhythm & Blues during 1994 after its casino
opened on June 27, 1994, offset partially by Lady Luck Tunica which had no
revenues in 1995, but which generated $11.1 million in gross revenues during
1994, and by an $8.4 million reduction in gross revenues from Lady Luck Natchez
during 1995 as compared to the same period in 1994. During the eight months
ended December 31, 1995, the Company also recognized lease income of $2.5
million for the lease of a gaming vessel and equipment to the Bettendorf Joint
Venture.
Casino revenues increased from $109.8 million during 1994 to $138.4 million
in 1995, an increase of $28.6 million or 26%. Casino operating expenses as a
percentage of casino revenues declined from 38% in 1994 to 36% in 1995.
Food and beverage revenues increased from $12.8 million in 1994 to $14.6
million in 1995, an increase of $1.8 million or 14%.
Hotel operations results between periods are not comparable because Lady
Luck Rhythm & Blues which commenced hotel operations August 7, 1994 had less
than five months of operations in 1994 compared to a full year in 1995. In
addition, ORD's hotel operations, which commenced August 25, 1994, were
contributed to the Bally's Joint Venture effective March 31, 1995.
Selling, general and administrative expenses decreased from $51.9 million
in 1994, to $49.5 million in 1995. Moreover, as a percentage of gross revenues,
selling, general and administrative expenses decreased from 41% in 1994 to 31%
in 1995, or 10 percentage points. This decrease is primarily attributable to the
unusually high selling, general and administrative expenses as a percentage of
net revenues for Lady Luck Tunica in 1994, due to its closing April 24, 1994,
and also due to implementation of steps, during 1995, to reduce corporate
overhead costs and focus development efforts on those projects which the Company
believes have the highest probability of success. Also, included in selling,
general and administrative expenses in 1995 are expenses of approximately $1.7
million in connection with the solicitation of the Amendments and Waivers.
During 1995, the Company recorded equity in net loss of unconsolidated
affiliates of $1.1 million of which approximately $0.2 million relates to the
Company's 50% ownership interest in the Bettendorf Joint Venture and of which
approximately $0.9 million relates to the Company's 35% ownership interest in
the Bally's Joint Venture. Included in the Company's portion of Bettendorf's net
loss is a one time pre-opening expense of $1.2 million.
Operating income (loss) was $24.1 million and ($22.6) million for 1995 and
1994, respectively. This increase was a result of a net revenue increase of
$32.4 million period over period while expenses decreased $14.2 million.
Interest expense, net of capitalized interest, increased from $16.9 million
in 1994 to $20.1 million in 1995. The $3.2 million increase is primarily
attributable to the additional long term debt incurred by the Company in
February 1994 and to a decrease in 1995 in the amount of interest capitalized
from $2.4 million to $0.8 million in 1994 and 1995, respectively, a decrease of
$1.6 million or 67%, due to less construction activity during 1995.
The net income applicable to common stockholders was $5.1 million or $0.18
per share in 1995 compared with a loss applicable common stockholders of $37.1
million or $1.47 per share for the same period in 1994. In addition to operating
and other factors described above, the Company had $0.5 million and $15.6
million of one-time charges in 1995 and 1994, respectively, for the reserve or
partial reserve of development assets associated with projects that the Company
did not expect to complete in the near future. In 1994, the Company also had an
abandonment loss related to ceasing operations in Tunica of $9.3 million. Net
income for 1995 and 1994 also include extraordinary gains of $2.3 million and
$1.1 million, respectively, resulting from exchanges of common stock for
indebtedness.
Certain Risks and Uncertainties
The Company's operations in Mississippi, Iowa and Colorado are dependent on
the continued licensability or qualification of the Company and its subsidiaries
that hold the gaming licenses in these jurisdictions. Such licensing and
qualifications are reviewed periodically by the gaming authorities in those
states. In addition, the Company's directors and many of the employees of
casinos are required to obtain gaming licenses. The failure of the Company or
any of its key personnel to obtain or retain a license in a particular
jurisdiction could have a material adverse effect on the Company's ability to
continue its current gaming operations or to obtain or retain licenses in other
jurisdictions. In addition, any regulations adopted by the gaming commissions,
the legislatures or any governmental authority having jurisdiction in
Mississippi, Colorado, Missouri, Iowa, or other jurisdictions in which the
Company has or intends to have gaming operations may materially adversely affect
the Company's operations.
Mississippi Gaming Commission regulations require licensees to invest
certain minimum amounts in land-based, non- gaming infrastructure (the
"Land-Based Requirement"). While the Mississippi Gaming Commission (the
"Commission") previously expressed concern as to whether LLB is in compliance
with such requirements, the Commission found, subsequent to December 31, 1996,
that LLB did in fact comply with the Land-Based Requirement.
A significant portion of the Company's consolidated revenues and operating
income are generated by the Company's Rhythm & Blues and Country Casino gaming
operations in Coahoma County, Mississippi. These casinos are highly dependent on
patronage by residents of Arkansas. A change in general economic conditions or
the extent and nature of regulations enabling casino gaming in Arkansas could
adversely effect these casinos' future operating results. In Arkansas, a gaming
referendum, which, if passed, would have legalized certain forms of gaming at
certain locations, was defeated in November 1996. If gaming were legalized in
certain areas of Arkansas, it could have a material adverse effect on the
Company's Coahoma County facilities and the Bally's Saloon and Gambling Hall.
The Company believes that its gaming markets are extremely competitive and
expects them to become even more competitive as the number of gaming and other
entertainment establishments increases. Such competition is particularly intense
in the Colorado and Mississippi markets and the Company also competes with
gaming facilities nationwide. It is also possible that substantial local and
nationwide competition could cause the supply of gaming facilities to exceed the
demand for gaming. Additionally, certain of the Company's competitors have more
gaming industry experience, larger operations or significantly greater financial
and other resources than the Company. Given these factors it is possible that
substantial competition could have a material adverse effect on the Company's
future results of operations.
The Company is highly leveraged. As of December 31, 1996, the Company's
total long-term indebtedness was approximately $181.1 million and its
stockholders' equity was approximately $6.3 million. This level of indebtedness
could have important consequences to stockholders. While management believes the
Company will have sufficient cash flow to meet its debt service and other cash
outflow requirements and maintain compliance with the covenants of the Indenture
as supplemented, to the extent that a substantial portion of the Company's cash
flow from operations is dedicated to the payment of principal and interest on
its indebtedness, such cash flow would not be available for other purposes such
as general operations, maintenance and improvement of casino and hotel
facilities or expansion of existing sites or into other gaming markets.
Furthermore, the Company's ability to obtain additional financing in the future
for working capital, capital expenditures or acquisitions may be limited and the
Company's level of indebtedness could limit its flexibility in planning for, or
reacting to, changes in its industry.
The Company currently estimates that it will cost approximately an
additional $72.0 million to complete development of the first two phases of the
Missouri Project and an additional $47.9 million to complete development of the
Vicksburg Project. The Company has entered into an Agreement of General
Partnership for a joint venture with Davis Gaming Company II with respect to the
Missouri Project which would reduce the Company's future capital commitments to
zero with respect to such project. However, there can be no assurance that the
Kimmswick Joint Venture will be consummated. In addition, Davis has entered into
a gaming joint venture with another party in Missouri. If the Kimmswick Joint
Venture is not consummated, there can be no assurance that the Company will be
able to continue to implement its business strategy with regard to the Missouri
Project. The Company has ceased committing material amounts of capital to the
Vicksburg Project and is actively seeking joint venture partners to finance its
completion. See "Business - Development Stage Projects." Rising costs and
capital constraints have forced the Company to seek joint venture partners to
complete the development of the Development Stage Projects and may further
suspend or delay certain projects, including the Pre-development Stage Projects.
The Company believes that, unless it is able to raise additional capital through
equipment or bank financing, joint venture arrangements, dispositions of
non-essential assets, or issuances of additional debt or equity securities,
while simultaneously reducing expenses, it will not be able to complete any of
the Development Stage Projects or pursue further the Pre-development Stage
Projects. There can be no assurance that additional capital, whether from equity
or debt financing or other sources, will be available, or if available, will be
on terms satisfactory to the Company.
Long-lived assets, which are not to be disposed of, including property and
equipment, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. An estimate of undiscounted future cash flows produced by the asset
is compared to the carrying amount to determine whether an impairment exists. If
an asset is determined to be impaired, the loss is measured based on quoted
market prices in active markets, if available. If quoted market prices are not
available, the estimate of fair value is based on the best information
available, including considering prices for similar assets and the results of
valuation techniques to the extent available.
The Company has evaluated the recoverability of LLB's and GCI's long-lived
assets as of December 31, 1996 pursuant to Financial Accounting Standards Board
Statement No. 121. In performing its review for recoverability, the Company
compared the estimated undiscounted future cash flows to the carrying value of
LLB's and GCI's long-lived assets. The carrying value of LLB's and GCI's
long-lived assets were $33.3 million and $9.7 million, respectively, at December
31, 1996. As the estimated undiscounted future cash flows exceeded the carrying
value of long-lived assets, the Company was not permitted or required to
recognize an impairment loss. Circumstances affecting management's estimates of
future undiscounted cash flow to be generated by LLB and GCI could differ in
future periods and result in a significant write-down.
<PAGE>
Operating Casinos
None of the Company's subsidiaries that are registrants hereunder, other
than the companies for which results of operations are set forth below,
currently has any operations. Amounts shown in the following tables are in
millions, except percentage amounts.
LLGC manages and charges fees to its wholly-owned operating subsidiaries
with substantially the same terms as the Old Management Agreements with LLCI.
LLGC does not separately allocate the fees under the New Marketing Agreement,
certain selling general and administrative expenses, rent for corporate office
facilities and certain services with respect to such corporate office facilities
and the salary of the Chairman of the Board of the Company that were formerly
included under the Old Management Agreements (all capitalized terms are defined
below).
<TABLE>
<CAPTION>
Lady Luck Rhythm & Blues (a)
<S> <C> <C> <C> <C> <C>
% Increase % Increase
(Decrease) (Decrease)
Year ended December 31, 1996 vs. 1995 vs.
1996 1995 1994 1995 1994
Gross revenues................... $ 95.2 $ 87.6 $ 37.0 9 137
Net revenues..................... 88.9 83.1 34.7 7 139
Management fee................... 3.1 3.1 0.7 - 343
Operating income................. 22.9 27.5 7.8 (17) 253
Operating margin (b)............. 26% 33% 22% (7) pts 11 pts
</TABLE>
____________________
(a) MLI commenced operations June 27, 1994; therefore, a comparison of 1995
to 1994 may not be meaningful. In addition, Country Casino and the Pavilion
opened May 21, 1996, therefore, a comparison of 1996 to 1995 may not be
meaningful.
(b) Operating income divided by net revenues
____________________
Year ended December 31, 1996 compared to Year ended December 31, 1995
MLI's gross revenues rose from $87.6 million during 1995 to $95.2 million
during 1996, an increase of $7.6 million or 9%. Slot machines generated $5.3
million of this increase. Increases in food and beverage, hotel and other
revenues offset partially by a 5% decrease in table and card games revenues
accounted for the balance of the increase in gross revenues at MLI.
There was a 43% increase in the average number of slot machines from 1995
to 1996 which was partially offset by a 25% decrease in the average daily net
win per slot machine. During 1996, MLI operated an average number of 1,141 slot
machines, an increase of 344 over the 797 average number of slot machines in
operation during 1995. This increase was partially offset by a $55 decrease in
the average daily net win per slot machine from $224 during 1995 to $169 during
1996. This decrease in the average daily net win per slot machine for the
comparative years occurred during the last three quarters as the average daily
net win per slot machine was approximately constant during the comparative first
quarter periods even though the average number of slot machines in operation
during the comparative first quarters increased 14%.
Despite only a 2 percentage point decrease in the table games hold
percentage and an increase in the average number of tables in operation from 32
during 1995 to 43 during 1996, table games revenues decreased 9% primarily
because the average daily net win per table game decreased from $1,186 to $820,
a decrease of $366 or 31%.
MLI's operating income decreased from $27.5 million to $22.9 million during
1995 and 1996, respectively, a decrease of $4.6 million or 17%. Operating income
decreased despite an increase in gross and net revenues due primarily to the
following: (i) disruption attributable to construction, (ii) a $4.5 million
increase in selling, general and administrative expenses including casino
marketing, rent and other expenses, and (iii) $0.2 million of other pre-opening
expenses for the opening of Country Casino and the Pavilion.
Year ended December 31, 1995 compared to Year ended December 31, 1994
MLI's gross revenues rose from $37.0 million to $87.6 million during the
approximately six month and one year periods ended December 31, 1994 and 1995,
respectively, an increase of $50.6 million or 137%. The increase in gross
revenues was primarily from a full year of operations in 1995 compared with
approximately six months of operations in 1994 and also from increases in the
number of slot machines and daily win per slot machine.
During the year ended December 31, 1995, MLI generated an average daily net
win per slot machine of $224 compared with an average daily net win per slot
machine of $205 during the approximately six months ended December 31, 1994, an
increase of $19 daily per slot or 9%. This increase in average daily net win per
slot machine was achieved despite an increase in the average number of slot
machines in operation for those periods. The average number of slot machines in
operation increased from 675 during the approximately six month period ended
December 31, 1994 to 797 during the year ended December 31, 1995, an increase of
122 in average slot machines or 18%.
Furthermore, MLI's operating income increased from $7.8 million to $27.5
million during the approximately six month and one year periods ended December
31, 1994 and 1995, respectively, an increase of $19.7 million or 253%. Operating
income was higher primarily due to a full year of operation in 1995 compared
with approximately six months of operations in 1994 and also from a decrease in
selling, general and administrative expenses in relation to gross revenues and
the absence of pre-opening expense in 1995.
Other factors
Additional casino and hotel capacity has been added to the Tunica,
Mississippi market, which competition the Company believes has adversely
affected revenues and operating results at MLI, the extent, materiality and
permanence of which are not presently known.
MLI's casinos are highly dependent on patronage by residents in Arkansas. A
change in general economic conditions or the extent and nature of regulations
enabling casino gaming in Arkansas could materially adversely affect these
casinos' future operating results. In Arkansas, a gaming referendum, which, if
passed, would have legalized certain forms of gaming at certain locations, was
defeated in November of 1996. If gaming were legalized in certain areas of
Arkansas, it could have a material adverse effect on the Company's Coahoma
County facilities and the Bally's Saloon and Gambling Hall.
29
<PAGE>
<TABLE>
<CAPTION>
Lady Luck Natchez
<S> <C> <C> <C> <C> <C>
% Increase % Increase
(Decrease) (Decrease)
Year ended December 31, 1996 vs. 1995 vs.
1996 1995 1994 1995 1994
Gross revenues.......... $33.3 $30.9 $39.3 8 (21)
Net revenues............ 30.4 29.0 36.9 5 (21)
Management fee.......... 1.1 1.1 0.8 - 38
Operating income........ 4.4 5.7 11.4 (23) (50)
Operating margin (a).... 14% 20% 31% (6)pts (11)pts
</TABLE>
____________________
(a) Operating income divided by net revenues
____________________
Since the fall of 1993, four casinos have opened in Vicksburg, Mississippi,
approximately 75 miles from Natchez; a Native American gaming facility has
opened in Louisiana within 60 miles of Natchez; and two cruising riverboat
casinos have opened in Baton Rouge, Louisiana, approximately 85 miles from
Natchez. As competition has intensified, revenues, cash flow and operating
income of LLM have been less than that attained in prior periods.
Year ended December 31, 1996 compared to Year ended December 31, 1995
LLM's gross revenues increased from $30.9 million to $33.3 million during
1995 and 1996, respectively, an increase of $2.4 million or 8%. The increase
resulted from an increase in slot machine and food and beverage revenues and the
addition of hotel revenues offset partially by a decrease in table games
revenues.
During these comparative periods, the average number of slot machines in
operation increased from 537 to 584, an increase of 47, or 9%. The decrease in
the table games revenues was primarily due to the average number of table games
in operation during 1995 and 1996, respectively, decreasing from 19 to 17, a
decrease of 11%. During the period from April 15, 1996 through December 31,
1996, the hotel's gross room revenues were $1.3 million.
During 1996, LLM had operating income of $4.4 million compared with
operating income of $5.7 million for the prior year, a $1.3 million decrease or
23%.
Year ended December 31, 1995 compared to Year ended December 31, 1994
LLM's gross revenues decreased from $39.3 million to $30.9 million during
the years ended December 31, 1994 and 1995, respectively, a decrease of $8.4
million or 21%. The decrease was from declines in average daily net win per slot
machine and per table game. During these comparative periods, average daily net
win per slot machine decreased from $140 to $116, a decrease of $24 or 17%, and
average net daily win per table game decreased from $1,016 to $764, a decrease
of $252 or 25%.
However, the decline in gross revenues appears to have ceased as evidenced
by a decrease in gross revenues from $15.9 million to $15.8 million during the
six month periods ended December 31, 1994 and 1995, respectively, a decrease of
only $0.1 million or 1%.
During the year ended December 31, 1994, LLM had operating income of $11.4
million compared with operating income of $5.7 million for the year ended
December 31, 1995, a $5.7 million decrease or 50%. This decrease is primarily
due to operating expenses decreasing approximately 9% while net revenues
declined approximately 21% because LLM experienced lower casino operating
margins.
Other factors
The Company believes the purchase of the River Park in April 1996 has
enhanced casino marketing efforts at Lady Luck Natchez by enabling it to offer
casino customers rooms at a Company operated hotel facility.
While other gaming projects have been announced in the Natchez market, none
are being developed at this time. If additional gaming projects were developed
in the Natchez market, LLM could be materially adversely affected.
If the Company develops its Vicksburg Project, the Company believes that
the revenues of LLM would not be materially adversely affected but, rather, the
revenues for the Vicksburg Project would be taken from the four existing
Vicksburg casinos.
<PAGE>
<TABLE>
<CAPTION>
Lady Luck Bettendorf (a)
<S> <C> <C> <C>
% Increase
Year ended Period ended (Decrease)
December 31, December 31, 1996 vs.
1996 1995 1995
Gross revenues ............. $68.5 $38.1 80
Net revenues................... 65.2 36.5 79
Management fee................. 1.6 0.8 100
Operating income (loss)........ 6.4 (0.1) 6,500
Operating margin (b)........... 10% 0% 10 pts
</TABLE>
_____________________
(a) Lady Luck Bettendorf opened April 21, 1995. Accordingly, a comparison
of 1996 to 1995 may not be meaningful. Lady Luck Bettendorf is 50% owned by
LLQC. The Company includes 50% of its net income as equity in net income of
affiliates using the equity method of accounting.
(b) Operating income divided by net revenues.
____________________
Year ended December 31, 1996 compared to Period ended December 31, 1995
The Bettendorf Joint Venture's gross revenues rose from $38.1 million to
$68.5 million during the approximately eight month and one year periods ended
December 31, 1995 and 1996, respectively, an increase of $30.4 million or 80%.
This increase in gross revenues was due to a full year of operations in 1996
compared with approximately eight months of operations in 1995, increases in the
average number of slot machines in operation and the average daily win per slot
machine, and increases in food and beverage revenues.
The Bettendorf Joint Venture has generated a steadily increasing average
daily net win per slot machine. During 1995,the Bettendorf Joint Venture
generated average daily net win per slot machine of $141 compared to average
daily net win per slot machine of $173 for 1996, a $32 increase or 23%. This
increase in average daily net win per slot machine was achieved despite a 5%
increase in the average number of slot machines. For 1996, average daily net win
per table was $717 machine, which was a $136 decrease, or 16%, from the average
daily net win per table of $853 achieved in 1995. This was partially offset by
the 9% increase in the average number of table games.
Included in operating income for 1995 are preopening expenses of $2.5
million related to the property's opening on April 21, 1995 and the completion
of the outlet mall later that year.
<PAGE>
<TABLE>
<CAPTION>
Lady Luck Biloxi
<S> <C> <C> <C> <C> <C>
% Increase % Increase
(Decrease) (Decrease)
Year ended December 31, 1996 vs. 1995 vs.
1996 1995 1994 1995 1994
Gross revenues............... $31.5 $31.0 $28.6 2 8
Net revenues................. 28.7 29.1 26.3 (1) 11
Management fee............... 1.1 1.1 0.6 - 83
Operating (loss)............. (1.1) (1.4) (4.3) 21 67
Operating margin (a)......... (4)% (5)% (16)% 1 pt 11 pts
</TABLE>
____________________
(a) Operating income divided by net revenues
____________________
Year ended December 31, 1996 compared to Year ended December 31, 1995
During 1995 and 1996, total gross revenues increased from $31.0 million to
$31.5 million. Slot machine revenues increased $1.9 million; however, the
increase was partially offset by a $0.5 million decrease in table games revenues
and a $0.8 million decrease in food and beverage revenues.
This increase in slot revenues was due to an increase in the average number
of slot machines in operation during these comparative years which increased
from 590 to 630, an increase of 40 or 7% and an increase in the average daily
net win per slot machine from $89 to $92, an increase of $3 or 3%. The decrease
in table games revenues during these comparative periods was due to a decrease
in the average number of table games in operation from 26 to 23, a decrease of 3
or 12% and was partially offset by an increase in the average daily net win per
table game from $604 to $610, an increase of $6 or 1%. Food and beverage
revenues decreased due to changes in the outlets and a temporary closing of one
outlet during remodeling.
LLB's operating loss improved from $1.4 million to $1.1 million in 1995 and
1996, respectively. The improvement was primarily due to reduced selling,
general and administrative expenses.
Year ended December 31, 1995 compared to Year ended December 31, 1994
LLB's gross revenues increased from $28.6 million to $31.0 million during
the years ended December 31, 1994 and 1995, respectively, an increase of $2.4
million or 8%. The increase was primarily from an increase in average daily net
win per slot machine. During these comparative periods, average daily net win
per slot machine increased from $76 to $89, an increase of $13 or 17%, which
more than offset the effect of decreasing the average number of slot machines in
operation for these comparative periods from 614 to 590, a decrease of 24 or 4%.
This increase in gross revenues primarily occurred during the comparative
six month periods ended December 31, 1994 and 1995, as evidenced by an increase
in gross revenues from $13.2 million to $16.1 million during these periods,
respectively, an increase of $2.9 million or 22%. This increase was primarily
from an increase in average daily net win per slot machine from $70 to $95, an
increase of $25 or 36%, during these comparative periods.
LLB's operating loss decreased from a $4.3 million loss to a $1.4 million
loss during the years ended December 31, 1994 and 1995, respectively, a decrease
in loss of $2.9 million or 67%. This decrease in operating loss primarily
occurred during the comparative six month periods ended December 31, 1994 and
1995. LLB had a $3.3 million operating loss and a $0.6 million operating loss
during the six month periods ended December 31, 1994 and 1995, respectively, an
improvement of $2.7 million. These comparative improvements were primarily due
to improved operating margins in the casino department and decreases in selling,
general and administrative expenses in relation to net revenues.
Other factors
Additional hotel capacity has been added in close proximity to LLB and
additional casino and hotel capacity are currently under construction in Biloxi.
The Company believes the Gulf Coast gaming market will remain at least constant
in the near term and that the long-term effects on LLB's results of operations
are not presently known.
<PAGE>
<TABLE>
<CAPTION>
Lady Luck Central City
<S> <C> <C> <C> <C> <C> <C>
% Increase % Increase
(Decrease) (Decrease)
Year ended December 31, 1996 vs. 1995 vs.
1996 1995 1994 1995 1994
Gross revenues................... $6.5 $6.9 $8.3 (6) (17)
Net revenues..................... 6.1 6.4 8.3 (5) (23)
Management fee................... 0.2 0.3 0.2 (33) 50
Operating (loss)................. (1.2) (1.2) (0.4) - (200)
Operating margin (a)............. (20)% (19)% (5)% (1)pt (14)pts
</TABLE>
____________________
(a) Operating income divided by net revenues.
____________________
Year ended December 31, 1996 compared to Year ended December 31, 1995
GCI's gross revenues decreased from $6.9 million to $6.5 million during
1995 and 1996, respectively, a decrease of $0.4 million or 6%.
The decrease was due to declines in slot revenues from decreasing the
average number of slot machines in operation from 341 to 294 for these
comparative periods. These machines were relocated, primarily in June 1995, to
other operating properties with higher average daily net wins per slot machine
or operating margins. This decrease was partially offset by an increase in
average daily net win per slot machine from $45 to $50 for 1996, an increase of
$5 or 11%.
Year ended December 31, 1995 compared to Year ended December 31, 1994
GCI's gross revenues decreased from $8.3 million to $6.9 million during the
years ended December 31, 1994 and 1995, respectively, a decrease of $1.4 million
or 17%.
The decrease was due to declines in slot revenues from decreasing the
average number of slot machines in operation from 400 to 341 in the years ended
December 31, 1994 and 1995, respectively, a decrease of 59 or 15%. In addition,
for the year ended December 31, 1994, GCI generated an average daily net win per
slot machine of approximately $44 as compared with an average daily net win per
slot machine of approximately $45 for the year ended December 31, 1995, an
increase of $1 daily per slot machine or 2%. This increase in average daily net
win per slot machine did not offset the decrease in slot revenues arising from
decreasing the average number of slot machines in operation. These machines were
relocated primarily in June 1995 to other operating properties with higher
average daily net win per slot machine or operating margins.
Other factors
During November 1996, GCI entered into the non-binding Memorandum with
Bullwhackers. The Memorandum provides for a combination of the respective
companies' gaming establishments which currently operate on adjacent real
property in Central City, Colorado and the use of, but not the title transfer or
assumption of debt related to, the assets of GCI and Bullwhackers. Pursuant to
the Memorandum, Bullwhackers shall provide resources and expertise to manage the
joint operation subsequent to the completion of certain capital improvements to
be made by GCI to combine the facilities and improve GCI's gaming equipment,
which capital improvements shall in no event exceed $1.5 million. The Memorandum
provides for distributions to be made at least quarterly in accordance with
certain priorities which first recognize the capital improvements to be made by
GCI. The Memorandum provides GCI an option to purchase the assets of
Bullwhackers and Bullwhackers an option to purchase the assets of GCI upon
advance written notice after the joint facility commences gaming operations. In
addition, the Memorandum provides a put option for Bullwhackers to sell its
assets to GCI under similar terms. The option price shall be determined based on
carrying amounts or earnings multiples and shall be at discounted amounts if the
sale is within a certain period and shall be in exchange for certain
consideration, a portion of which may include LLGC common stock. The
transactions contemplated by the Memorandum are subject to various contingencies
including, inter alia, the due diligence investigation of the parties,
governmental approvals, approval by the Boards of Directors of GCI and
Bullwhackers, and the negotiation and execution of definitive agreements.
However, no assurance can be provided that these contingencies will be
satisfied.
Additional casinos developed in the Central City or competing Colorado
gaming markets or changes in the Colorado gaming legislation may have a material
adverse effect on the net revenues and operating results of GCI.
Liquidity and Capital Resources
During 1996, the Company generated $13.5 million in cash from operations.
Additional sources of cash were $8.9 million of restricted cash, and $3.0
million of cash and cash equivalents related to the Greek projects, which became
available for specified uses upon consent from a sufficient number of holders of
the 2001 Notes. Cash flow from operations, restricted cash and cash on hand at
the beginning of the year were the primary sources of cash during 1996. The
primary uses of cash and non- cash resources during 1996, other than operating
expenditures, include:
A. $21.5 million cash for the purchase of property and equipment, including
approximately $18.0 million to complete construction and equip Country
Casino and the Pavilion, $4.0 million for the acquisition of the River Park
comprising $1.0 million cash and a mortgage note for the balance, and $1.0
million for the acquisition of the Riverbluff comprising $0.6 million cash
and a mortgage note for the balance. Also included are portions of the
costs of remodeling Lady Luck Natchez, the Riverbluff and a portion of the
River Park.
B. $5.4 million cash for payment of debt and slot contracts.
C. $3.8 million for the acquisition of slot machines and other assets by
certain subsidiaries in exchange for indebtedness.
GCI did not generate positive operating cash flow during 1996. Due to debt
service requirements on an equipment note payable and a mortgage note, GCI
required cash infusions of $1.1 million during 1996 and, during 1997, is
expected to require additional cash infusions to cover up to $0.7 million of
scheduled repayments on an equipment note payable and anticipated operating cash
shortfalls.
During November 1996, GCI entered into the Memorandum with Bullwhackers.
Pursuant to the Memorandum, certain capital improvements would be made by GCI to
combine the GCI and Bullwhackers facilities and improve GCI's gaming equipment,
which capital improvements shall in no event exceed $1.5 million. The Memorandum
provides for distributions to be made quarterly in accordance with certain
priorities which first recognize the capital improvements to be made by GCI. The
Memorandum provides GCI an option to purchase the assets of Bullwhackers and
Bullwhackers an option to purchase the assets of GCI upon advance written notice
after the joint facility commences gaming operations in addition to a put option
for Bullwhackers to sell its assets to GCI under similar terms. The transactions
contemplated by the Memorandum are subject to various contingencies including,
inter alia, the due diligence investigation of the parties, governmental
approvals, approval by the Boards of Directors of GCI and Bullwhackers, and the
negotiation and execution of definitive agreements. There can be no assurance
that these contingencies will be satisfied.
The Company is remodeling portions of the River Park and will be expending
approximately $0.2 million in 1997 in addition to amounts expended during 1996.
The remodeling includes replacement of certain furniture and equipment and is
expected to be completed during the first half of 1997.
Various other amounts of cash and other non-cash resources may be used
during 1997 for capital improvements, expansions or acquisitions which cannot
currently be estimated and may be contingent upon market conditions and other
factors. If significant cash or other resources become available, the Company
may make additional capital expenditures related to the Lady Luck Rhythm &
Blues, Lady Luck Natchez, Lady Luck Biloxi and other capital acquisitions,
improvements, or expansions which cannot currently be estimated and may be
contingent upon market conditions and the amount of excess cash or non-cash
resources available, if any. Capital expenditures at Lady Luck Rhythm & Blues
could include additional hotel rooms and signage. In any case, the amount of
such capital expenditures will be based upon cash available and market
conditions at the time any commitment is made.
The Company may also repurchase 2001 Notes from time to time in early
satisfaction of any repurchase expected pursuant to the Indenture, the amount of
which and the timing of repurchase cannot currently be estimated and is
dependent on excess cash flow and market conditions.
The Company has entered into an agreement for the construction of a
cruising gaming vessel in the amount of $16.0 million and as of December 31,
1996, approximately $6.0 million has been expended under this contract,
approximately $1.9 million of which is included in construction payables at
December 31, 1996. It is anticipated that this vessel will be utilized by LLK
and, therefore, the Missouri Project will be responsible for payment of the
remaining amounts under the contract. However, if the Missouri Project is never
consummated the Company may be responsible for the then outstanding obligations.
No further significant expenditures for projects under development are
anticipated from existing cash or cash flow from operations. If the Company
determines it needs additional funds, there can be no assurance that such funds,
whether from equity or debt financing or other sources, will be available, or if
available, will be on terms satisfactory to the Company.
LLGC has been named as a defendant in a purported shareholder class action
lawsuit alleging violations by the Company of the Securities Act of 1933 and the
Securities Exchange Act of 1934 for alleged material misrepresentations and
omissions in connection with LLGC's 1993 prospectus and initial public offering
of Common Stock. The complaint seeks, inter alia, injunctive relief, rescission
and unspecified compensatory damages. In addition to LLGC, the complaint also
names as defendants Andrew H. Tompkins, Chairman and Chief Executive Officer of
LLGC, Alain Uboldi, Director and Chief Operating Officer of LLGC, Michael
Hlavsa, the former Chief Financial Officer of LLGC, Bear Stearns & Co., Inc. and
Oppenheimer & Co., Inc., who acted as lead underwriters for the initial public
offering. The Company has retained outside counsel to respond to the complaint
and while the outcome of this matter cannot presently be determined, the Company
believes based in part on advice of counsel, that it has meritorious defenses.
The Company and certain of its joint venture partners (the "Defendants")
are defendants in a lawsuit brought by the country of Greece and its Minister of
Tourism before the Greek Multi-Member Court of First Instance. The action
alleges that the Defendants failed to make certain payments in connection with
the gaming license bid process for Patras, Greece. The payments the Company is
alleged to have been required to make aggregate approximately 2.1 billion
drachma (which was approximately $7.8 million as of March 5, 1997 based upon
published exchange rates). Although it is difficult to determine the damages
being sought from the lawsuit, the action may seek damages up to such aggregate
amount. The Company's Greek counsel is defending the lawsuit and in management's
opinion, the ultimate outcome of this matter is not presently known.
Also, a Greek architect filed an action against the Company alleging that
he was retained by the Company to provide professional services with respect to
a casino in Loutraki, Greece. The plaintiff in such action sought damages of
approximately $800,000. On July 29, 1996, the Company's Greek counsel was served
with a decision by the Athens Court of First Instance in such matter. The Greek
Court entered judgement against the Company in the amount of approximately 87.1
million drachma (which was approximately $325,000 as of March 5, 1997, based
upon published exchange rates). The Company intends to appeal the Court's
decision and has been informed by its Greek counsel that it has meritorious
grounds to prosecute such appeal.
On November 5, 1996, the United States Bankruptcy Court for the Northern
District of Mississippi dismissed a lawsuit which had been brought by Superior
against LLM on or about September 23, 1993. Superior had previously done
construction work for LLM on its Natchez barge ("Lady Luck Natchez"), as well as
some minor preparatory work on one other barge of the Company. Such proceeding
alleged damages of approximately $47,000,000, of which approximately $3,400,000
was alleged for additional construction work on Lady Luck Natchez and the
remaining amount was alleged for unjust enrichment, for causing the bankruptcy
of Superior and for future work Superior expected to perform for the Company.
Superior has appealed the decision to dismiss the action. The Company, based in
part on the advice of its counsel, believes that it has meritorious defenses and
does not believe that the appeal of the decision will have a material adverse
effect on the Company's financial condition or results of operations.
The Company is subject to certain federal, state and local environmental
protection, health and safety laws, regulations and ordinances that apply to
non-gaming businesses generally. In the course of conducting the environmental
investigation at the proposed site for Lady Luck Gulfport, the Company
identified certain contamination at the site. Pursuant to an administrative
order issued by the Mississippi Department of Environmental Quality, the Company
undertook remedial activities, including soil remediation and the installation
of groundwater monitoring wells. No additional remediation is currently
required, although some additional soil remediation may be required in the
course of obtaining a building permit. Although there can be no assurances, the
Company believes that the cost of such additional soil remediation, if any, will
not have a material impact on the liquidity or capital resources of the Company.
Additionally, although the Company knows of no other pre-existing conditions at
its Operating Casinos or at the intended sites for the Development Stage
Projects or the Pre-development Stage Projects that will result in any material
environmental liability or delay, there can be no assurance that pre-existing
conditions will not be discovered and result in material liability or delay to
the Company.
In the opinion of management, the Company believes it will have sufficient
cash flow to meet its debt service and other cash outflow requirements and
maintain compliance with the revised covenants of the Indenture during 1997.
There can be no assurance, however, that the Company will in fact have
sufficient cash resources to meet its cash requirements under any circumstances.
Impact of Inflation
Absent changes in competitive and economic conditions or in specific prices
affecting the industry, management does not expect that inflation will have a
significant impact on the Company's operations. Changes in specific prices (such
as fuel and transportation prices) relative to the general rate of inflation may
have a material effect on the hotel-casino industry.
Seasonality and Weather
A flood or other severe weather condition could cause the Company to lose
the use of one or more dockside facilities for an extended period. The inability
to use a dockside facility during any period could have a material adverse
effect on the Company's financial results. In addition, a disproportionate
amount of GCI's revenues is received during the summer months. GCI is accessible
only via a narrow, winding mountain road and, accordingly, inclement weather may
have an adverse effect on revenues. While seasonal revenue fluctuations may
occur at the Company's existing and proposed casinos in Mississippi, Iowa and
Missouri, such seasonal fluctuations are expected to be less significant than
those experienced in Colorado.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Mandatory Cumulative Redeemable Preferred
Stock and Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Lady Luck Gaming Corporation:
We have audited the accompanying consolidated balance sheets of Lady Luck
Gaming Corporation (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations, mandatory
cumulative redeemable preferred stock and stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lady Luck Gaming Corporation
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 26, 1997
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
As of December 31, 1996 and 1995
(in thousands)
ASSETS
<S> <C> <C>
1996 1995
Current assets:
Cash and cash equivalents................................ $ 15,490 $ 22,148
Restricted cash.......................................... - 8,858
Accounts receivable...................................... 1,276 597
Inventories.............................................. 1,198 885
Prepaid expenses......................................... 2,620 2,731
Total current assets................................. 20,584 35,219
Property and equipment:
Land and land improvements............................... 26,604 19,569
Building and improvements................................ 113,500 93,554
Furniture, fixtures and equipment........................ 50,306 42,275
190,410 155,398
Less accumulated depreciation............................ (28,736) (17,611)
161,674 137,787
Construction in progress................................. 11,445 17,877
Total property and equipment, net.................... 173,119 155,664
Other assets:
Pre-opening costs........................................ 1,353 1,100
Deferred financing fees and costs, net of
accumulated amortization of $2,482 and $1,607
as of December 31, 1996 and 1995,
respectively......................................... 3,605 4,470
Investment in unconsolidated affiliates, net............. 21,449 17,619
Other.................................................... 3,608 3,209
30,015 26,398
TOTAL ASSETS.................................................. $ 223,718 $ 217,281
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS (continued)
As of December 31, 1996 and 1995
(in thousands, except share and per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
1996 1995
Current liabilities:
Current portion of long-term debt........................ $ 3,385 $ 5,624
Accrued interest......................................... 1,825 2,326
Accounts payable......................................... 4,416 3,240
Construction payables.................................... 1,957 3,126
Income taxes payable..................................... 42 195
Other accrued liabilities................................ 8,267 9,191
Total current liabilities............................ 19,892 23,702
Long-term debt:
Mortgage notes payable................................... 173,500 173,500
Other long-term debt..................................... 7,581 3,473
Total long-term debt................................. 181,081 176,973
Total liabilities............................... 200,973 200,675
Commitments and contingencies (Notes 14, 15 and 16)
Series A mandatory cumulative redeemable preferred
stock, $37.89 and $33.83, respectively per share
liquidation value, 1,800,000 shares authorized,
433,638 shares issued and outstanding.................... 16,430 14,669
Stockholder' equity:.........................................
Common stock, $.001 par value, 75,000,000 shares
authorized, 29,285,698 shares issued and
outstanding as of December 31, 1996
and 1995............................................. 29 29
Additional paid-in capital............................... 31,382 31,382
Accumulated deficit...................................... (25,096) (29,474)
Total stockholders' equity........................... 6,315 1,937
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY..................................... $ 223,718 $ 217,281
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK GAMING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands, except per share amounts)
<S> <C> <C> <C>
1996 1995 1994
Revenues:
Casino.................................... $ 143,886 $ 138,412 $ 109,800
Food and beverage......................... 16,928 14,556 12,766
Hotel..................................... 3,948 2,635 1,569
Equity in net income (loss) of
unconsolidated affiliates............. 3,815 (1,137) -
Other..................................... 5,657 3,945 999
Gross revenues........................ 174,234 158,411 125,134
Less: Promotional
allowances....................... (12,527) (8,821) (7,979)
Net revenues.......................... 161,707 149,590 117,155
Costs and expenses:
Casino.................................... 56,806 49,703 41,859
Food and beverage......................... 6,928 8,582 7,215
Hotel..................................... 1,925 1,667 652
Other..................................... 282 310 574
Selling, general and
administrative........................ 53,786 49,539 51,926
Related party management/license fees 2,317 5,520 2,471
Depreciation and amortization............. 11,289 9,694 7,067
Settlement of claim....................... 1,100 - -
Pre-opening expenses...................... 247 - 2,970
Project development cost write-downs
and reserves.......................... 404 509 15,635
Abandonment loss.......................... - - 9,344
Total costs and expenses.............. 135,084 125,524 139,713
Operating income (loss)........................ 26,623 24,066 (22,558)
Other income (expense):
Interest income........................... 1,073 1,237 1,717
Interest expense, net..................... (22,170) (20,058) (16,910)
Other..................................... 682 (383) (200)
(20,415) (19,204) (15,393)
Income (loss) before income tax
(provision) benefit and
extraordinary items...................... 6,208 4,862 (37,951)
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK GAMING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands, except share and per share amounts)
<S> <C> <C> <C>
1996 1995 1994
Income (loss) before income tax
(provision) benefit and
extraordinary items................... 6,208 4,862 (37,951)
Income tax (provision) benefit.............. (69) (401) 1,171
Income (loss) before extraordinary
items.................................. 6,139 4,461 (36,780)
Extraordinary gain on early
extinguishment of debt................. - 2,257 1,115
NET INCOME (LOSS)........................... 6,139 6,718 (35,665)
Preferred stock dividends................... ( 1,761) (1,572) (1,404)
Income (loss) applicable to
common stockholders.................... $ 4,378 $ 5,146 $ (37,069)
NET INCOME (LOSS) PER SHARE
Before extraordinary items and
preferred stock dividends.......... $ 0.21 $ 0.15 $ (1.45)
Extraordinary items.................... $ - $ 0.08 $ 0.04
Applicable to common stockholders $ 0.15 $ 0.18 $ (1.47)
Weighted average number of common
shares outstanding..................... 29,285,698 28,952,365 25,299,968
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK GAMING CORPORATION
CONSOLIDATED STATEMENTS OF MANDATORY CUMULATIVE REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mandatory
Cumulative Retained Total
Redeemable Common Common Stock Additional Earnings Stockholders'
Preferred Stock Number Paid-in (Accumulated Equity
Stock Warrants of Shares Amount Capital Deficit) (Deficit)
Balance at December 31, 1993 $ 11,693 1 24,793 $ 25 $ 23,438 $ 2,449 $ 25,913
Warrants exercised............. - (1) 992 1 - - -
Accrued preferred stock
dividends.................. 1,404 - - - - (1,404) (1,404)
Common stock issued for debt... - - 1,500 1 3,884 - 3,885
Net loss....................... - - - - - (35,665) (35,665)
Balance at December 31, 1994 13,097 - 27,285 27 27,322 (34,620) (7,271)
Accrued preferred stock
dividends ................ 1,572 - - - - (1,572) (1,572)
Common stock issued for debt... - - 2,000 2 4,060 - 4,062
Net income..................... - - - - - 6,718 6,718
Balance at December 31, 1995 14,669 - 29,285 29 31,382 (29,474) 1,937
Accrued preferred stock
dividends ............... 1,761 - - - - (1,761) (1,761)
Net income.................... - - - - - 6,139 6,139
Balance at December 31, 1996 $ 16,430 - 29,285 $ 29 $ 31,382 $ (25,096) $ 6,315
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands)
<S> <C> <C> <C>
1996 1995 1994
Cash flows from operating activities:
Net income (loss)............................ $ 6,139 $ 6,718 $ (35,665)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization.............. 11,289 9,694 7,067
Amortization of bond offering
fees and costs........................... 865 910 929
Gain on early extinguishment
of debt.................................. - (2,257) (1,115)
(Gain) loss on sale of assets.............. (404) 533 -
Abandonment loss........................... - - 9,344
Equity in net (income) loss of
unconsolidated affiliates................ (3,815) 1,137 -
Project development cost write-downs
and reserves............................. 404 509 15,635
Pre-opening expenses....................... 247 - 2,970
(Increase) decrease in assets:
Accounts receivable........................ (275) 210 (517)
Inventories................................ (313) (89) 68
Prepaid expenses........................... 111 637 (1,185)
Income tax receivable...................... - 2,308 (2,308)
Deferred tax asset......................... - - 3,421
Increase (decrease) in liabilities:
Accrued interest........................... (501) (4,178) 5,254
Accounts payable........................... 1,176 (3,492) 4,292
Income taxes payable....................... (153) 195 (1,642)
Other accrued liabilities.................. (1,278) 4,248 2,042
Net cash provided by operating activities....... 13,492 17,083 8,590
Cash flows from investing activities:
Purchase of property and equipment (21,524) (10,752) (102,682)
Retirement of property and equipment......... - - 905
Construction payables........................ (1,169) (6,681) (1,003)
Development costs............................ - - (8,635)
Investment in unconsolidated affiliates...... (15) (2,163) -
Pre-opening costs............................ (500) (427) (3,420)
Restricted cash.............................. 8,858 (1,011) (7,847)
Other assets................................. (449) 104 (680)
Net cash used in investing activities (14,799) (20,930) (123,362)
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands)
<S> <C> <C> <C>
1996 1995 1994
Cash flows from financing activities:
Net proceeds from borrowings................. 40 2,219 186,343
Payment on 1998 Notes........................ - - (47,200)
Deferred financing fees and costs............ - - (6,490)
Payments on debt and slot contracts.......... (5,391) (5,138) (7,318)
Net cash (used in) provided by financing
activities .................................. (5,351) (2,919) 125,335
Net (decrease) increase in cash and cash
equivalents.................................. (6,658) (6,766) 10,563
Cash and cash equivalents,
beginning of year............................ 22,148 28,914 18,351
Cash and cash equivalents, end of year.......... $ 15,490 $ 22,148 $ 28,914
Supplemental disclosures of cash flow
information :
Cash paid during the year for:
Interest (net of amount capitalized
of $514, $762 and
$2,383 in 1996, 1995 and
1994, respectively) .................. $ 21,806 $ 22,563 $ 10,727
Income taxes paid (received)............ $ 225 $ (2,103) $ (641)
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The liquidation value of the Series A mandatory cumulative redeemable preferred
stock increased by approximately $1,761,000, $1,572,000 and $1,404,000 in unpaid
accrued dividends for the years ended December 31, 1996, 1995 and 1994,
respectively.
On April 15, 1996, Lady Luck Mississippi acquired the River Park for
approximately $4,000,000, including approximately $1,000,000 cash and a
non-recourse mortgage note for the balance.
On July 3, 1996, Magnolia Lady, Inc. acquired the Riverbluff for approximately
$1,000,000, including approximately $600,000 cash and a non-recourse mortgage
note for the balance.
In February 1995, 2,000,000 shares of common stock were issued upon the
conversion of $6,500,000 of the 2001 Notes. In December 1994, 1,500,000 shares
of common stock were issued upon the conversion of $5,000,000 of the 2001 Notes.
On March 31, 1995, the Company contributed net assets totaling approximately
$16,100,000 to the Bally's Joint Venture.
In addition to net cash investments in and cash payments on behalf of the
Bettendorf Joint Venture during 1995 of approximately $2,100,000, the Company
contributed non-cash assets of approximately $837,000.
The Company entered into several contracts with manufacturers for the purchase
of slot machines and other assets which totaled approximately $3,780,000,
$111,000 and $209,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. The Company and Basis of Presentation
The consolidated financial statements of Lady Luck Gaming Corporation
("LLGC"), a Delaware corporation, include the accounts of LLGC and its
subsidiaries (collectively the "Company"). The Company's operations primarily
include those of LLGC, Lady Luck Gaming Finance Corporation ("LLGFC"), a
Delaware corporation; Lady Luck Mississippi, Inc. ("LLM"), Lady Luck Biloxi,
Inc. ("LLB"), Lady Luck Gulfport, Inc. ("LLG"), Lady Luck Vicksburg, Inc.
("LLV") and Lady Luck Tunica, Inc. ("LLT"), each a Mississippi corporation
(collectively the "Mississippi Companies"); Gold Coin Incorporated ("GCI"), a
Delaware corporation; Lady Luck Kimmswick, Inc. ("LLK"), a 93% owned Missouri
corporation; Magnolia Lady, Inc. ("MLI"), a Mississippi corporation; Lady Luck
Quad Cities, Inc. ("LLQC"), a Delaware corporation; and Old River Development,
Inc. ("ORD"), a Mississippi corporation. The Company also owns investments in
joint ventures with BRDC and Bally's (see Note 4) which are accounted for under
the equity method. LLGC and its subsidiaries were organized to develop and
operate gaming and hotel properties in emerging jurisdictions.
LLGC and LLGFC were formed in February 1993, pursuant to an Investment
Agreement dated October 20, 1992 between Andrew H. Tompkins, certain affiliates
of Mr. Tompkins and certain holders of equity and debt securities of GCI (the
"Investment Agreement"). Pursuant to the Investment Agreement, Mr. Tompkins
indirectly contributed all outstanding common stock of the Mississippi Companies
to LLGFC in exchange for 550,000 shares of LLGC Class B Common Stock and 216,819
shares of LLGC Series A Mandatory Cumulative Redeemable Preferred Stock ("Series
A") (see Note 6), liquidation value of $5,420,000. In connection with the
contribution of the stock of the Mississippi Companies, Mr. Tompkins received
$3,734,000 which represented the historical carrying value of the net assets of
$13,400,000 in excess of the capital contribution required by the Investment
Agreement. LLM began dockside casino operations on February 26, 1993 in Natchez,
Mississippi and acquired and took over operation of the 147-room River Park in
Natchez, Mississippi on April 15, 1996; GCI reopened on May 28, 1993; LLT began
dockside casino operations on September 18, 1993 in southern Tunica County,
Mississippi and ceased operations on April 24, 1994; LLB began dockside casino
operations on December 13, 1993 in Biloxi, Mississippi, and MLI, which does
business as Lady Luck Rhythm & Blues, commenced dockside gaming operations on
June 27, 1994 in Coahoma County, Mississippi, commenced operation of a 173-room
hotel on August 16, 1994, commenced gaming operations of Country Casino and the
Pavilion, as described below, on May 21, 1996 and acquired and took over
operation of the 120-room Riverbluff in Helena, Arkansas on July 3, 1996. ORD
commenced operation of a 240-room hotel on August 24, 1994 and contributed it to
the Bally's Joint Venture in March 1995 (see Note 4). All of the other
Mississippi Companies and LLK are in various stages of development and have no
operating history.
2. Certain Risks and Uncertainties
The Company's operations in Mississippi, Iowa and Colorado are dependent on
the continued licensability or qualifications of the Company and its
subsidiaries that hold the gaming licenses in these jurisdictions. Such
licensing and qualifications are reviewed periodically by the gaming authorities
in these states.
Mississippi Gaming Commission regulations require licensees to invest
certain minimum amounts in land-based, non-gaming infrastructure (the
"Land-Based Requirement"). The Mississippi Gaming Commission (the "Commission")
found, subsequent to December 31, 1996, that LLB complied with the Land-Based
Requirement.
A significant portion of the Company's consolidated revenues and operating
income are generated by the Company's Coahoma County casino operations. These
casinos are highly dependent on patronage by residents in Arkansas. A change in
general economic conditions or the extent and nature of regulations enabling
casino gaming in Arkansas could adversely affect these casinos' future operating
results. On November 5, 1996, Arkansas residents voted to defeat a ballot
measure which would have allowed voters in Hot Springs, Arkansas, to decide
whether to allow up to three casinos in the city. The measure, if passed, would
also have created a state lottery and legalized charitable bingo.
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
3. Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Significant intercompany accounts and transactions have
been eliminated.
(b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Among the
estimates made by management is the evaluation of the recoverability of the
carrying values of the land held for development and the projects under
development by Lady Luck Vicksburg, Inc. and Lady Luck Kimmswick, Inc. (See Note
16).
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less as cash equivalents.
(d) Restricted Cash
Restricted cash consists of amounts held in escrow and cash specifically
restricted to be used in accordance with the terms of the Indenture related to
the 2001 Notes.
(e) Inventories
Inventories are stated at the lower of cost, as determined by the first-in,
first-out method, or market value.
(f) Property and Equipment
Property and equipment are stated at cost. The Company capitalizes interest
on funds dispersed during the active construction and development phases of its
projects. Depreciation and amortization are computed using predominantly the
straight-line method for financial reporting purposes and accelerated methods
for income tax purposes. Estimated useful lives for financial reporting purposes
are as follows:
Land improvements..............................................15 years
Buildings and improvements..................................15-30 years
Furniture, fixtures and equipment.............................5-7 years
Costs of major improvements are capitalized, while costs of normal repairs
and maintenance are charged to expense as incurred.
Substantially all property and equipment is pledged as collateral for
long-term debt. (See Note 5).
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(g) Investment in Joint Ventures
The Company accounts for its investment in 50% or less owned joint ventures
using the equity method of accounting. Under the equity method, original
investments are recorded at cost and adjusted by the Company's share of
earnings, losses and distributions of these joint ventures.
(h) Pre-Opening Costs
Pre-opening costs include direct incremental project salaries and other
pre-opening costs incurred during the pre-opening phase of a project.
Pre-opening costs directly related to gaming and hotel operations are
capitalized as incurred and are charged to expense in the period the project's
operations commence.
(i) Development Costs
Development costs represent those costs such as legal and consulting fees,
gaming license applications and options for land acquisitions or leases incurred
for prospective gaming projects. The Company defers such costs for those
projects in jurisdictions in which gaming is legalized and in which the Company
believes that it has a probable chance of obtaining a license and completing the
project; otherwise, the costs are expensed as incurred. These costs will be
capitalized as either pre-opening costs or property and equipment when the
gaming license is received and the project commences construction.
(j) Deferred Financing Fees and Costs
Deferred financing fees and costs incurred relating to the issuance of the
2001 Notes were capitalized and are being amortized to interest expense using
the effective interest method over the term of the 2001 Notes.
(k) Revenue Recognition
Casino revenues represent the net win from gaming activities, which is the
difference between gaming wins and losses.
(l) Income Taxes
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109 "Accounting for Income Taxes." SFAS No. 109 requires
the recognition of deferred tax assets and liabilities for the consequences of
temporary differences between amounts reported for financial reporting and
income tax purposes. SFAS No. 109 requires recognition of a future tax benefit
of net operating loss carryforwards and certain other temporary differences to
the extent that realization of such benefit is more likely than not; otherwise,
a valuation allowance is applied.
(m) Net Income (Loss) Per Share
Net income (loss) per share is computed using the weighted average number
of common shares and common stock equivalents, if dilutive, actually outstanding
during the year. Common stock equivalents represent the shares that would be
outstanding assuming exercise of dilutive stock options. No common stock
equivalents are included in the computation for the years ended December 31,
1996, 1995 and 1994, as their effect would be anti-dilutive or would dilute
earnings per share by less than three percent.
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(n) Fair Value of Financial Instruments
The fair value of the Company's financial instruments approximates their
recorded values at December 31, 1996 and 1995, except for the Company's mortgage
notes payable, the fair market values of which, based on quoted market prices,
were approximately $175.0 million and $159.8 million, respectively. The fair
values are not necessarily indicative of the amounts the Company could realize
in a current market exchange.
(o) Long-lived Assets
Long-lived assets, which are not to be disposed of, including property and
equipment, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. An estimate of undiscounted future cash flows produced by the asset
is compared to the carrying amount to determine whether an impairment exists. If
an asset is determined to be impaired, the loss is measured based on quoted
market prices in active markets, if available. If quoted market prices are not
available, the estimate of fair value is based on the best information
available, including considering prices for similar assets and the results of
valuation techniques to the extent available.
The Company has evaluated the recoverability of LLB's and GCI's long-lived
assets as of December 31, 1996 pursuant to Financial Accounting Standards Board
Statement No. 121. In performing its review for recoverability, the Company
compared the estimated undiscounted future cash flows to the carrying value of
LLB's and GCI's long-lived assets. The carrying value of LLB's and GCI's
long-lived assets were $33.3 million and $9.7 million, respectively, at December
31, 1996. As the estimated undiscounted future cash flows exceeded the carrying
value of long-lived assets, the Company was not permitted or required to
recognize an impairment loss. Circumstances affecting management's estimates of
future undiscounted cash flow to be generated by LLB and GCI could differ in
future periods and result in a significant write-down.
(p) Reclassifications
Certain reclassifications have been made to the prior year amounts to
conform to the current year presentation and have no impact on net income.
4. Investment in Unconsolidated Affiliates
The Company's investments in joint ventures with Bettendorf Riverfront
Development Company ("BRDC") and Bally's are accounted for under the equity
method and the Company's portion of income or loss from the joint ventures is
included in Equity in Net Income (Loss) of Unconsolidated Affiliates in the
accompanying Consolidated Statements of Operations for the years ended December
31, 1996 and 1995.
In December 1994, the Company entered into a joint venture (the "Bettendorf
Joint Venture") with BRDC to complete and operate a casino in Bettendorf, Iowa
("Lady Luck Bettendorf"). The joint venture agreement required that the Company
and BRDC each contribute cash to the Bettendorf Joint Venture of $3.0 million in
return for a 50% ownership interest. In addition, BRDC is leasing certain real
property to the Bettendorf Joint Venture at a lease rate equal to $150,000 per
month. The Company is leasing a gaming vessel with a cost of $21,635,000 and a
carrying value net of accumulated depreciation as of December 31, 1996 of
$20,168,000 to the Bettendorf Joint Venture for approximately $189,000 per
month, which amount was determined based upon arms-length negotiations between
the Company and BRDC and the Company's cost of capital at the time. In addition,
the Company is leasing certain gaming equipment with a cost of $3,705,000 and a
carrying value net of accumulated depreciation as of December 31, 1996 of
$2,755,000 to the Bettendorf Joint Venture, as discussed below, for
approximately $122,000 per month, its fair market rental value. The Company's
rental income relating to the gaming vessel lease was $2,187,000 and $1,707,000
for the years ended December 31, 1996 and 1995, respectively. The Company's
rental
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
income relating to the gaming equipment lease was $1,649,000 and $833,000 for
the years ended December 31, 1996 and 1995, respectively.
Lady Luck Bettendorf commenced operations on April 21, 1995. All net
profits and losses from all operations of Lady Luck Bettendorf are allocated
equally between the Company and BRDC. The Company has also been granted the
right to manage Lady Luck Bettendorf with substantially the same terms and fees
as the Company's wholly-owned casinos, less $37,500 per month, with a portion of
the fees received by the Company paid to BRDC as consultants.
Summarized balance sheet information for the Bettendorf Joint Venture as of
December 31, 1996 and 1995 is as follows (in thousands):
December 31, 1996 December 31, 1995
Current assets $ 5,935 $ 3,142
Property and equipment, net 12,435 11,435
Total assets $ 18,370 $ 14,577
Current liabilities $ 5,492 $ 7,108
Long-term liabilities 1,107 1,880
Members' equity 11,771 5,589
Total liabilities and
members' equity $ 18,370 $ 14,577
The Bettendorf Joint Venture's net loss for 1995 includes pre-opening
expenses of $2.5 million. Summarized results of operations for the Bettendorf
Joint Venture for the year ended December 31, 1996 and the period from
commencement of operations through December 31, 1995 are as follows (in
thousands):
1996 1995
Net revenues $ 65,202 $ 36,475
Costs and expenses 59,020 36,886
Net income (loss) $ 6,182 $ (411)
In March 1995, the Company formed a joint venture with affiliates of
Bally's to complete a casino/hotel project in northern Tunica County,
Mississippi. Upon formation of the Bally's Joint Venture, ORD contributed its
existing 240-room hotel in northern Tunica County, as well as other related
assets and liabilities, with a total net cost of $16.1 million, to the joint
venture. Bally's contributed a closed dockside casino (the "Dockside Casino")
which was, at the time of such contribution, located at Mhoon Landing in
southern Tunica County, and certain other assets to the joint venture. The
Dockside Casino has been relocated to the ORD hotel site. A Bally's entity
manages and controls the Bally's Joint Venture. The Bally's Joint Venture is
owned 58% by Bally's, 35% by ORD and 7% by D.J. Brata, a former 11% minority
shareholder of ORD. The Company is currently negotiating with Bally's and D.J.
Brata the final amount of the Company's initial capital contribution to be
credited to its partners' capital account and other matters in accordance with
the joint venture agreement and, in 1995, provided a reserve of $350,000
relating to any unfavorable resolution of these matters. Hotel operations under
Bally's management commenced in April 1995 and casino operations commenced in
December 1995.
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
Summarized balance sheet information for the Bally's Joint Venture as of
December 31, 1996 and 1995 is as follows (in thousands):
December 31, 1996 December 31, 1995
Current assets $ 8,630 $ 10,110
Property and equipment, net 51,537 51,511
Other assets 1,041 4,329
Total assets $ 61,208 $ 65,950
Current liabilities $ 7,279 $ 6,148
Long-term liabilities 6,994 485
Partners' capital 46,935 59,317
Total liabilities and
partners' capital $ 61,208 $ 65,950
Summarized results of operations for the Bally's Joint Venture for the year
ended December 31, 1996 and the period from formation of the Bally's Joint
Venture on March 31, 1995 through December 31, 1995 are as follows (in
thousands):
1996 1995
Net revenues $ 70,093 $ 6,963
Costs and expenses 67,976 9,676
Net income (loss) $ 2,117 $ (2,713)
Net income (loss) of the Bally's Joint Venture for the year ended December
31, 1996 and the period from formation through December 31, 1995 includes
pre-opening expenses of $3.3 million and $0.7 million, respectively.
<PAGE>
5. Long-Term Debt
At December 31, 1996 and 1995, long-term debt consisted of the following
(in thousands):
<TABLE>
<S> <C> <C>
1996 1995
11 7/8% First Mortgage Notes; semi-annual payments
of interest only; due March 2001; collateralized
by substantially all assets of the Company (the
"2001 Notes")....................................... $ 173,500 $ 173,500
Note payable to a corporation; monthly payments of
interest only at 10%; principal due July 2001,
collateralized by a deed of trust................... 2,750 3,000
Note payable to a corporation; annual payments of
principal of $119 plus accrued interest at 8%;
due June 2003; collateralized by a land deed of
trust............................................... 833 952
Notes payable to corporations; monthly payments of
principal and interest at rates up to prime plus
7%; due through May 1998 secured by the
equipment........................................... 3,589 2,420
Note payable to a corporation; payment of principal
and accrued interest at 14%; due March 1996;
secured by a gaming vessel.......................... - 2,219
Mortgage note payable to a corporation; quarterly
payments of principal and interest at prime plus
1 1/2% based on a 20 year amortization; due
April 2006; collateralized by a deed of trust....... 2,925 -
Note payable to a corporation; quarterly payments of
principal and accrued interest at 9%; due
October 1998, collateralized by a deed of trust..... 385 -
Other..................................................... 484 506
184,466 182,597
Less: current portion..................................... (3,385) (5,624)
Total long-term debt................................ $ 181,081 $ 176,973
</TABLE>
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
The Indenture as supplemented effective March 28, 1996, covering the 2001
Notes (the "Indenture") provides for, among other things, restrictions on the
Company's and certain of its subsidiaries' abilities (a) to pay dividends or
other distributions on its capital stock, (b) to incur additional indebtedness,
(c) to make asset sales (d) to engage in other lines of business, and (e) to
maintain a minimum consolidated net worth as defined.
As of September 30, 1994 and each of the five consecutive quarters
thereafter, the Company did not meet the Minimum Net Worth Covenant as contained
in the Indenture. Under the terms of the Indenture, the Company was required to
offer to repurchase $16,500,000 of 2001 Notes within certain specific time
periods of determination of the failure to maintain the minimum net worth for
two consecutive quarters. The Company did not offer to repurchase any of the
2001 Notes. After notice to the Company and a failure by the Company to cure
such event of default, the holders of 25% of the 2001 Notes had the right to
accelerate payment of the 2001 Notes.
In addition, the Company was generally required under the terms of the
Indenture to complete four qualifying projects, as defined, by September 30,
1995 (the "Construction Completion Covenant"). The Company completed and opened
the dockside casino owned by MLI, a qualifying casino, during 1994 and has
incurred significant costs related to the LLV and LLK projects; however, the
Company was unable to complete the three remaining qualifying projects.
Accordingly, the Company was required under the terms of the Indenture to make
an irrevocable, unconditional offer to repurchase $30,000,000 of 2001 Notes for
each project not completed. The Company did not make such offer.
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
On March 28, 1996 the Company received consents from certain holders of the
2001 Notes who held in excess of 66 2/3% of the outstanding 2001 Notes (the
"2001 Noteholders") to approve the Amendments and Waivers. Based upon these
consents, the 2001 Notes have been classified as long-term as of December 31,
1996 and 1995. The Amendments and Waivers enable the Company to continue to
implement its business strategy by, among other things, seeking joint venture
partners to invest in its development stage projects and selling certain
specified under-performing assets. The elimination of the Construction
Completion Covenant in the Indenture allows the Company to complete the
development stage projects on a timetable and in a manner dictated by market
conditions, if at all. Also, an adjustment to the consolidated net worth
covenant in the Indenture which ties the net worth calculation more directly to
the Company's operating results by, among other things, excluding the impact of
write-downs or losses upon the sale of unproductive assets owned on or before
December 31, 1994 and including the book value of any investment in any joint
venture which is pledged for the benefit of the noteholders, was approved. In
addition, the Company received waivers from the 2001 Noteholders with respect to
the Company's failure or possible failure to comply with certain other covenants
and restrictions contained in the Indenture.
The 2001 Notes now bear interest at the rate of 11-7/8% per annum effective
retroactive to October 15, 1995. Interest on the 2001 Notes held by each holder
who consented to the Amendments and Waivers will be payable quarterly on each
March 1, June 1, September 1 and December 1, so long as the 2001 Notes are
outstanding (interest on the notes held by each holder who did not consent to
the Amendments and Waivers will continue to be payable semi-annually on March 1
and September 1). In addition, the Company is obligated within 180 days after
the end of each year, commencing with the year ending December 31, 1996, to
purchase on the open market, or to make an offer to purchase from the holders at
par, 2001 Notes with a principal amount equal to Excess Cash Flow (as defined in
the Indenture) for such year, provided that the Company will be able to credit
towards the amount of 2001 Notes required to be purchased in any year any amount
of 2001 Notes it has purchased since January 1, 1996 which it has not previously
used as a credit in any prior year. There was no Excess Cash Flow for the year
ended December 31, 1996. After giving effect to the Amendments and Waivers, the
Company believes it is in compliance with the Indenture as of December 31, 1996.
Scheduled maturities of long-term debt for each of the years ending as of
December 31, are as follows (in thousands):
1997............................................ $ 3,385
1998............................................ 1,538
1999............................................ 271
2000............................................ 271
2001............................................ 176,521
Thereafter...................................... 2,480
Total................................... $ 184,466
6. Mandatory Cumulative Redeemable Preferred Stock
LLGC has authorized 1,800,000 shares of Series A Mandatory Cumulative
Redeemable Preferred Stock. As indicated in Note 1, 216,819 Series A shares were
issued to Mr. Tompkins in connection with the contribution of the Mississippi
Companies' common stock and 216,819 shares were issued to various stockholders
in connection with LLGC's acquisition of GCI. Holders of Series A are entitled
to a compounded cumulative preference dividend each quarter. The current
dividend is 11.5% of the liquidation preference per share per annum, payable or
accrued in quarterly installments. Dividends of approximately $1,761,000,
$1,572,000 and $1,404,000 were accrued on the Series A preferred stock during
the years ended December 31, 1996, 1995 and 1994, respectively. The Series A
also requires mandatory redemption on December 31, 2013.
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
7. Stockholders' Equity
Common stock of LLGC consists of 75,000,000 authorized shares. In
connection with the issuance of the $40 million of notes in 1998 (the "1998
Notes"), LLGC issued warrants to purchase 4,857,620 shares of its Class A Common
Stock to the holders of the 1998 Notes. Also, in connection with the acquisition
of GCI on April 28, 1993, LLGC issued warrants to purchase an additional
4,857,620 shares of its Class A Common Stock to the former owners of GCI. The
warrants are exercisable for five years from the date of issuance at an exercise
price of $.001 per share.
On October 8, 1993, LLGC successfully completed a public offering of
5,175,000 shares of its common stock of which 3,675,000 shares were sold by
existing shareholders and 1,500,000 shares were sold by LLGC. The net proceeds
to the Company from the offering were $20,616,000. In connection with the
offering, LLGC amended its Certificate of Incorporation to eliminate certain
supermajority voting provisions, to increase the authorized capitalization to
75,000,000 shares of common stock and 1,800,000 shares of mandatory cumulative
redeemable preferred stock and to have only one class of common stock. Also, in
connection with the offering, LLGC declared an approximately 24.29 for 1 stock
split. All share and per share amounts have been retroactively restated to
reflect the stock split.
In connection with the completion of the public offering, 8,722,829
warrants were exercised at the exercise price of $.001 per share, 3,675,000 in
accordance with the initial public offering and 5,047,829 subsequent to the
public offering. The remaining 992,411 warrants were exercised at the exercise
price of $.001 per share during the year ended December 31, 1994.
On February 27, 1995 and December 30, 1994, the Company exchanged 2,000,000
and 1,500,000 shares of its common stock for $6,500,000 and $5,000,000 of the
2001 Notes, respectively. The Company recognized extraordinary gains on such
exchanges of $2,257,000 and $1,115,000 for the years ended December 31, 1995 and
1994, respectively, which represented the difference between the amount of debt
exchanged, net of unamortized issue costs, and the market price of the common
stock. Due to available net operating loss carry forwards, (See Note 11), no
income tax provision was recognized on the extraordinary gains.
8. Promotional Allowances
The retail value of food, beverages and rooms provided on a complimentary
basis to customers without charge are included in gross revenues and then
deducted as promotional allowances. The estimated cost of providing these
promotional allowances are included in casino departmental expenses for the
years ended December 31, 1996, 1995, and 1994, as follows (in thousands):
1996 1995 1994
Food and beverage................. $8,370 $6,201 $5,845
Hotel and other................... 800 439 85
Total..................... $9,170 $6,640 $5,930
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
9. Abandonment Loss
The operating results at LLT during the first three months of 1994 were
significantly below the results for the period from opening (September 18, 1993)
through December 31, 1993. Additionally, the Company determined that because of
increased competition from casinos in northern Tunica County, it was unlikely
that operating results at LLT would improve if LLT remained in southern Tunica
County. Therefore, on April 24, 1994, pursuant to a decision of the Company's
management and the Board of Directors, the Company ceased operations at LLT in
southern Tunica County.
LLT abandoned certain leasehold rights and improvements at the southern
Tunica County site which had a cost, net of accumulated depreciation, of
approximately $8,137,000. Further, certain assets on the barge with a cost, net
of depreciation, of approximately $1,207,000 were removed and abandoned
resulting in an abandonment loss of $9,344,000 for the year ended December 31,
1994. The Company transferred the remaining property and equipment, principally
the casino and restaurant barges, with a net cost of approximately $19,164,000
to MLI. Significant additional improvements, at an approximate cost of
$30,702,000 were made to the MLI casino and restaurant barges.
10. Project Development Cost Write-Downs
During 1996, the Company provided reserves of approximately $350,000
related to the remaining LLG leases and approximately $50,000 related to its
investment in Lady Luck New Mexico ("LLNM") for a total reserve related to LLNM,
including the 1995 reserve of approximately $150,000, of approximately $200,000.
During 1995, the Company provided a reserve of $350,000 related to the
Bally's Joint Venture agreement for any potential unfavorable resolution of the
Company's initial investment in and other matters related to the joint venture.
(See Note 4).
During 1994, the Company re-evaluated all of its proposed projects under
developments giving consideration to the changing regulatory, political, and
competitive environment in several jurisdictions as well as the decline in
available financial resources required to complete all of the proposed projects.
As a result of these and other factors, the Company determined to cease
developing projects in Chicago, Illinois, the Country of Greece, Gulfport,
Mississippi, and several other locations. The Company also determined that the
present probability of obtaining a license in Lawrenceburg, Indiana no longer
met the Company's cost deferral criteria. Accordingly, the Company recorded a
charge of approximately $8,262,000 related to these projects.
Further, due to the Bally's Joint Venture agreement (see Note 4), and
changing market conditions in Vicksburg, Mississippi, the Company determined
that certain adjustments were necessary to properly reflect the estimated net
realizable value of ORD and LLV. Accordingly, the Company recognized development
cost write-downs of $3,540,000 related to ORD and $3,833,000 related to LLV in
1994.
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
11. Income Taxes
The net deferred tax asset (liability) as of December 31, 1996 and 1995,
are as follows (in thousands):
1996 1995
Deferred Tax Asset
Net operating loss carry-forward............ $ 15,480 $ 14,295
Abandonment loss............................ 2,161 2,161
Unconsolidated affiliates................... 605 570
Deposits.................................... 525 525
Other....................................... 2,059 1,941
20,830 19,492
Less: valuation allowance.................. (7,055) (9,371)
Net deferred tax asset...................... 13,775 10,121
Deferred Tax Liability
Excess of tax depreciation over book........ (11,913) (9,030)
Other....................................... (1,862) (1,091)
Net deferred tax liability.................. (13,775) (10,121)
Net.............................................. $ - $ -
SFAS No. 109 requires recognition of the future tax benefit of these assets
to the extent realization of such benefits is more likely than not, otherwise, a
valuation allowance is applied. At December 31, 1996 and 1995, the Company
determined that $7,055,000 and $9,371,000 respectively, of tax benefits did not
meet the realization criteria because of the Company's history of operating
results. Accordingly, a valuation allowance was applied to reserve the
applicable deferred tax assets.
The following summarizes the components of the income tax (provision)
benefit for the years ended December 31, 1996, 1995 and 1994 (in thousands):
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Current......................................... $ (69) $ (196) $ 4,592
Deferred........................................ - (205) (3,421)
Income Tax (Provision) Benefit........... $ (69) $ (401) $ 1,171
Mississippi state income taxes were offset by a tax credit for state gaming
taxes which are based on gross gaming revenues. The credit is the lesser of the
annual total gaming taxes paid or the Mississippi state income tax. Credit
carry- forwards are not permitted and may not be used on a combined company
basis.
</TABLE>
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
A reconciliation of the "expected" income tax (provision) benefit assuming
a 35% federal statutory rate to the income tax provision for the years ended
December 31, 1996, 1995 and 1994 is as follows (in thousands):
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
"Expected" income tax (provision) benefit............. $ (2,173) $ (2,492) $ 12,892
Nondeductible items..................................... (59) (278) 274
Net operating loss carryforward......................... 2,163 2,369 -
Net operating loss-no benefit recorded.................. - - (11,995)
Income Tax (Provision) Benefit....................... $ (69) $ (401) $ 1,171
</TABLE>
At December 31, 1996 and 1995, the Company had net operating loss
carryforwards available for income tax purposes of approximately $44,000,000 and
$41,000,000, respectively, which expire from 2009 to 2010.
12. Stock Option Plan
Under the 1993 stock option plan (the "Stock Option Plan"), options may be
granted to purchase up to an aggregate of 1,000,000 shares of LLGC's common
stock. All full-time officers and other key executives, as well as outside
directors of LLGC, will be eligible to receive options. Options may be granted
that either are intended to be incentive stock options or non-qualified stock
options for income tax purposes. Each option granted will be exercisable in full
at any time or from time to time as determined by the Compensation Committee,
provided that no option may have a term exceeding ten years.
During the years ended December 31, 1996, 1995 and 1994, 177,000, 43,000
and 575,000 stock options were granted, respectively, at exercise prices ranging
from $2.50 to $13.00 per share. The exercise prices of the options granted at an
exercise price greater than $3.12 per share were re-priced during 1994 to $3.12
per share, the market value at the date of the re-pricing. During 1996, 1995 and
1994, no options expired or were exercised; 10,000, 252,000 and 42,000 options
were canceled, respectively.
The Company accounts for the Stock Option Plan under APB No. 25, under
which no compensation cost has been recognized. Had compensation cost for this
plan been determined consistent with FASB Statement No. 123, the Company's net
income and earnings per share would have been reduced to the following pro forma
amounts:
Years Ended December 31,
1996 1995
(In thousands)
Net income applicable to common stockholders reported $4,378 $5,146
Pro Forma $4,054 $5,021
Primary Earnings per share as reported $ 0.15 $0.18
Pro Forma $ 0.14 $0.17
Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
The options granted to date to various employees and outside directors vest
ratably over 5 years, with an expiration 10 years from the date of issuance.
Option prices were equal to or greater than market value on the date of
issuance, and at December 31, 1996, the weighted issue price of the options was
$2.64. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: risk-free interest
rates of 6.5% for both 1995 and 1996; expected lives of 5 years for 1996 and
1995, expected volatility of 185 and 153 percent. There are no expected dividend
yields in 1996 and 1995.
A summary of the status of the stock option plan and weighted average
exercise prices ("WAEP") at December 31, 1996 and 1995 and changes during the
years then ended is presented in the table below:
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
<S> <C> <C> <C> <C>
Number of Number of
Shares WAEP Shares WAEP
Outstanding at beginning of year 324 $3.12 533 $3.12
Granted 177 2.53 43 3.12
Forfeited/Canceled (10) 3.12 (252) 3.12
Outstanding at end of year 491 2.91 324 3.12
Exercisable at year end 121 3.12 118 3.12
Weighted average fair value of options $2.02 $1.93
</TABLE>
13. Employment Agreements
On October 24, 1994, LLGC entered Letter Agreements with Alain J. Uboldi,
LLGC's President, Chief Operating Officer and Director, and Rory J. Reid, LLGC's
Senior Vice-President, General Counsel, Secretary and Director (the
"Agreements"). The Agreements provide that in the event of a Change of Control,
as defined in the Agreements, and the subsequent termination of the employment
of either Mr. Uboldi or Mr. Reid, under certain circumstances, LLGC would be
required to pay to Mr. Uboldi and Mr. Reid a lump sum severance payment equal to
2.99 times the sum of their respective annual base salary plus the amount of any
bonus paid in the year preceding such termination. In the event of such
termination, Mr. Uboldi and Mr. Reid would also receive in cash an amount equal
to the product of the difference between subtracting the exercise price of each
option held by Mr. Uboldi or Mr. Reid (whether or not fully exercisable) from
the current price of LLGC's common stock, as defined. Further, in connection
with the Agreements, Mr. Uboldi and Mr. Reid would receive life, disability,
accident and health insurance benefits substantially similar to those they are
receiving immediately prior to their termination for a 36-month period after
such termination.
14. Related Party Transactions
The Company previously entered into certain management agreements (the "Old
Management Agreements") with Lady Luck Casino, Inc. ("LLCI"), a company owned by
Andrew Tompkins, the CEO and Chairman of the Board of the Company. Pursuant to
the Old Management Agreements, LLCI provided management services to the Company
regarding the operations and marketing of each of the Operating Casinos.
Effective January 1, 1996 the Company has entered into new marketing agreements
(the "New Marketing Agreements") with entities controlled by Mr. Tompkins. Under
the New Marketing Agreements, LLGC pays an annual licensing fee with respect to
the Lady Luck name and the mailing list developed by Gemini, Inc. a wholly-owned
corporation of Mr. Tompkins which does business as Lady Luck Casino/Hotel
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
in Las Vegas, Nevada, ("Gemini") equal to the greater of (a) 9% of LLGC's EBITDA
(calculated as EBITDA of LLGC and all its subsidiaries and joint ventures
(multiplied, in the case of the Kimmswick Joint Venture, if consummated, and the
Bettendorf Joint Venture, by the interest owned by the Company in such joint
ventures), excluding, among other things, all revenues and expenses arising from
any casino or casino/hotel for which LLGC is not the operator and which does not
utilize the mailing list or Lady Luck name and excluding revenues from the lease
of equipment owned by LLGC to third parties) and (b) $1,700,000 per year (as
adjusted based on the Consumer Price Index). LLGC has agreed to use the "Lady
Luck" name on all existing and future casinos which it operates. With respect to
the Bettendorf Joint Venture, LLCI assigned to LLGC its rights to receive a
management fee and its obligation to pay part of that fee to BRDC. During any
default in the payment of principal of or interest on the Notes, LLGC will not
pay (but will accrue on its books) any licensing fee to LLCI. In addition, LLGC:
(i) pays Gemini the sum of $300,000 per year as adjusted based on the Consumer
Price Index for corporate office facilities and certain services with respect to
such corporate office facilities; (ii) reimburses a related party of LLGC,
wholly-owned by Mr. Tompkins, which performs marketing services on the Company's
behalf, for certain allocated payroll and overhead costs, which for 1996 totaled
approximately $659,000; and, (iii) will no longer receive reimbursement from a
wholly-owned corporation of Mr. Tompkins for the salary and benefits paid to Mr.
Tompkins as Chairman of the Board and Chief Executive Officer of LLGC
(collectively the "Management/License Fee Overhead Costs").
Certain transactions have occurred between the Company and Marco Polo
International Marketing, Inc. ("Marco Polo"), Gemini, Inc. ("Gemini"), and LLCI,
all companies wholly owned and controlled by Mr. Tompkins. The Company has
incurred, on behalf of LLCI and Marco Polo in accordance with the Old Management
Agreements, expenses for certain individuals' salaries, wages and benefits which
were reimbursed by those entities in the amount of $668,000 and $1,370,000 for
the years ended December 31, 1995 and 1994, respectively. In addition, the
Company incurred $3,000, $30,000 and $159,000 of expenses for the years ended
December 31, 1996, 1995 and 1994, respectively, which were related to
advertising and other expenses and were reimbursed by Gemini.
The Company also reimbursed expenses in the amount of $219,000 and
$1,364,000 for the years ended December 31, 1995 and 1994, respectively, related
to direct advertising and marketing costs that were paid for by Marco Polo. The
Company also reimbursed Gemini for the approximate retail value of rooms, food
and beverage, and other items provided to the Company by Gemini in the amount of
$129,000, $146,000 and $515,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
In addition, pursuant to the Old Management Agreements, Andrew H. Tompkins,
the Chairman of the Board and Chief Executive Officer of the Company, was
obligated to use the Company as his exclusive vehicle, subject to certain
limited circumstances, for conducting gaming activities in the United States
(exclusive of Nevada) and Puerto Rico. Mr. Tompkins was free, however, to pursue
gaming opportunities outside such area. Certain affiliates of Mr. Tompkins
entered into agreements regarding pursuit of certain gaming opportunities in the
Country of Greece (the "Greek Opportunities") for which Mr. Tompkins incurred
expenses. Subsequently, Mr. Tompkins assigned the rights to the Greek
Opportunities to the Company and the Company reimbursed Mr. Tompkins $597,000
for his expenses.
15. Litigation
Shareholder Class Action Lawsuits
LLGC has been named as a defendant in a purported shareholder class action
lawsuit alleging violations by the Company of the Securities Act of 1933 and the
Securities Exchange Act of 1934 for alleged material misrepresentations and
omissions in connection with LLGC's 1993 prospectus and initial public offering
of Common Stock. The complaint seeks, inter alia, injunctive relief, rescission
and unspecified compensatory damages. In addition to the Company, the
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
complaint also names as defendants Andrew H. Tompkins, Chairman and Chief
Executive Officer of LLGC, Alain Uboldi, Director and Chief Operating Officer of
LLGC, Michael Hlavsa, the former Chief Financial Officer of LLGC, Bear Stearns &
Co., Inc. and Oppenheimer & Co., Inc., who acted as lead underwriters for the
initial public offering. LLGC has retained outside counsel to respond to the
complaint and while the outcome of this matter cannot presently be determined,
the Company believes based in part on advice of counsel, that it has meritorious
defenses.
Greek Lawsuits
The Company and certain of its joint venture partners (the "Defendants")
are defendants in a lawsuit brought by the country of Greece and its Minister of
Tourism before the Greek Multi-Member Court of First Instance. The action
alleges that the Defendants failed to make certain payments in connection with
the gaming license bid process for Patras, Greece. The payments the Company is
alleged to have been required to make aggregate approximately 2.1 billion
drachma (which was approximately $7.8 million as of March 5, 1997 based upon
published exchange rates). Although it is difficult to determine the damages
being sought from the lawsuit, the action may seek damages up to such aggregate
amount. The Company's Greek counsel is defending the lawsuit and in management's
opinion, the ultimate outcome of this matter is not presently known.
Additionally, a lawyer and a consultant which were allegedly retained by
the Company in connection with the Company's bid for a gaming license in Greece
recently threatened litigation against the Company. On or about September 24,
1996, the Company and the lawyer and consultant reached an agreement whereby in
exchange for certain consideration mutual releases were executed.
Also, a Greek architect filed an action against the Company alleging that
he was retained by the Company to provide professional services with respect to
a casino in Loutraki, Greece. The plaintiff in such action sought damages of
approximately $800,000. On July 29, 1996, the Company's Greek counsel was served
with a decision by the Athens Court of First Instance in such matter. The Greek
Court entered judgement against the Company in the amount of approximately 87.1
million drachma (which was approximately $325,000 as of March 5, 1997 based upon
published exchange rates). The Company intends to appeal the Court's decision
and has been informed by its Greek counsel that it has meritorious grounds to
prosecute such appeal.
Other Matters
On November 5, 1996, the United States Bankruptcy Court for the Northern
District of Mississippi dismissed a lawsuit which had been brought by Superior
Boat Works, Inc. ("Superior") against LLM on or about September 23, 1993.
Superior had previously done construction work for LLM on its Natchez barge
("Lady Luck Natchez"), as well as some minor preparatory work on one other barge
of the Company. Such proceeding alleged damages of approximately $47,000,000, of
which approximately $3,400,000 was alleged for additional construction work on
Lady Luck Natchez and the remaining amount was alleged for unjust enrichment,
for causing the bankruptcy of Superior and for future work Superior expected to
perform for the Company. Superior has appealed the decision to dismiss the
action. The Company, based in part on the advice of its counsel, believes that
it has meritorious defenses and does not believe that the appeal of the decision
will have a material adverse effect on the Company's financial condition or
results of operations.
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
16. Commitments and Contingencies
Lease Commitments
MLI leases approximately 1,000 acres of land surrounding the Helena Bridge
which connects Mississippi to Arkansas. The MLI lease provides that the monthly
lease payment would increase by $150,000 per month beginning July 1, 1995 until
an additional casino either north or south of the Lady Luck Rhythm & Blues
property commenced operation. In accordance with the lease agreement, this
additional rent was paid by the Company. With the opening of the Country Casino
on May 21, 1996, this provision was satisfied and the rental payment reverted to
a percentage basis.
LLGC on its own or through its operating subsidiaries, has entered into a
series of leases and options to lease in various locations where it is operating
or intends to develop and operate dockside casinos. The leases are primarily for
a term of 40 years from the date of execution and are cancelable at the option
of LLGC with a maximum period of notice of 60 days with the exception of certain
leases entered into by LLB and LLG which are cancelable upon six months notice
on the fifth anniversary of the commencement date of such leases and upon six
months notice on any fifth anniversary date thereafter. In addition, LLGC, on
its own or through its operating subsidiaries, has entered into certain options
to either lease or purchase additional property in other states. Most of the
leases are contingent upon regulatory approval of the lease and all leases
contain certain periodic rent adjustments. Rent expense incurred under operating
leases was approximately $8,934,000, $8,380,000 and $4,514,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
Prior to suspending development of a planned casino in Gulfport,
Mississippi, the Company entered into three leases for real property (the
"Gulfport Lease"). The leases currently require annual payments of approximately
$920,000 and provide for future increases based on the Consumer Price Index. The
Company is seeking joint venture partners to assume the leases or invest in the
proposed casino project; however, there can be no assurance that such a joint
venture will be consummated. The principal lease is terminable by LLG in
November 1998 and requires an annual lease payment of approximately $550,000 per
year through such date. The Company was required to prepay the lease payments
for the twelve months ending November 1998. The Company was required to make
improvements to the leased property of at least $1.0 million on or before May 8,
1995 (the "Improvement Requirement"). While the Company has spent in excess of
$1.0 million on the Gulfport Project, the landlord, while not now claiming that
the Company is in default, has reserved the right to claim that Lady Luck
Gulfport has not satisfied the Improvement Requirement. The Company has been in
discussions with third parties, including joint venture partners, regarding an
assumption of the Gulfport Lease. There can be no assurance that such
negotiations or discussions will be successful. Because the Company has
suspended development of the Gulfport Project and in order to conserve its
funds, the Company may not make the required monthly lease payments in the
future. Accordingly, a reserve of approximately $600,000 was provided as of
December 31, 1995 to fully reserve the prepaid lease payment for the twelve
months ending November 1998, and an additional reserve of approximately $350,000
was provided as of December 31, 1996 to reserve a portion of future lease
payments.
Future minimum lease commitments under non-cancelable long-term operating
leases for the years ending December 31, are as follows (in thousands):
1997.............................................. $ 3,500
1998.............................................. 2,995
1999.............................................. 2,128
2000.............................................. 2,083
2001.............................................. 1,771
Thereafter........................................ 33,887
Total.......................................... $ 46,364
Central City Memorandum of Understanding
During November 1996, GCI entered into a non-binding Memorandum of
Understanding (the "Memorandum") with Bullwhackers. The Memorandum provides for
a combination of the respective companies' gaming establishments which currently
operate on adjacent real property in Central City, Colorado and the use of, but
not the title transfer or assumption of debt related to, the assets of GCI and
Bullwhackers. Pursuant to the Memorandum, Bullwhackers shall provide resources
and expertise to manage the joint operation subsequent to the completion of
certain capital improvements to be made by GCI to combine the facilities and
improve GCI's gaming equipment, which capital improvements shall in no event
exceed $1.5 million. The Memorandum provides for distributions to be made at
least quarterly in accordance with certain priorities which first recognize the
capital improvements to be made by GCI. The Memorandum provides GCI an option to
purchase the assets of Bullwhackers and gives Bullwhackers an option to purchase
the assets of GCI upon advance written notice after the joint facility commences
gaming operations. In addition, the Memorandum provides a put option for
Bullwhackers to sell its assets to GCI under similar terms. The option price
shall be determined based on carrying amounts or earnings multiples and shall be
at discounted amounts if the sale is within a certain period and shall be in
exchange for certain consideration, a portion of which may include LLGC common
stock. The transactions contemplated by the Memorandum are subject to various
contingencies including, inter alia, the due diligence investigation of the
parties, governmental approvals, approval by the Boards of Directors of GCI and
Bullwhackers, and the negotiation and execution of definitive agreements.
However, no assurance can be provided that these contingencies will be
satisfied.
Construction Commitments
The Company has entered into an agreement for the construction of a
cruising gaming vessel in the amount of $16.0 million and as of December 31,
1996, approximately $6.0 million has been expended under this contract and
approximately $1.9 million is included in construction payables. It is
anticipated that this vessel will be utilized by LLK and, therefore, the
Missouri Project will be responsible for payment of the remaining amounts under
the contract. However, if the Missouri Project is not consummated the Company
may be responsible for the then outstanding obligations.
Development Stage Projects
In addition to its Operating Casinos, the Company has dockside or riverboat
casino projects in various stages of development in Kimmswick, Missouri and
Vicksburg, Mississippi. The current status of each of these Development Stage
Projects is described below.
Kimmswick, Missouri
Previously, the Company and a local investor (the "Original Investor")
intended to develop a themed hotel and entertainment center, including a casino
on a cruising vessel, in Jefferson County, Missouri, located just outside the
city of Kimmswick and approximately 20 miles south of St. Louis. At that time,
the Original Investor owned approximately 7% of the Missouri Project. However,
construction of the Missouri Project was delayed due to the prohibition against
games of chance (slot machines and roulette) until Missouri voters ratified a
constitutional amendment in November 1994. The Company determined that it was
not in a position to commit additional capital to the Missouri Project. Thus,
management determined that it was in the Company's best interests to seek a new
joint venture partner to assist in completion of the Missouri Project.
Accordingly, on November 30, 1995, LLK entered into an Agreement of General
Partnership (the "Kimmswick Agreement") with Davis Gaming Company II ("Davis")
to form a joint venture (the "Kimmswick Joint Venture") to construct and operate
a hotel and casino on an approximately 45-acre parcel of land in Jefferson
County, Missouri (the "Kimmswick
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
Site"). Through December 31, 1996, the Company had expended approximately $8.4
million in the Missouri Project. Such investment consists of approximately $6.0
million for construction of the partially finished cruising vessel and
approximately $2.4 million in other costs associated with the development of the
project.
Pursuant to the Kimmswick Agreement, LLK will contribute certain assets
with a book value of approximately $8 million to the Kimmswick Joint Venture in
consideration of a 40% interest in the Kimmswick Joint Venture (if the assets
contributed by LLK are determined to have a value of less than $8 million, LLK
will have to contribute additional cash or assets in the amount of such
shortfall or its interest in the Kimmswick Joint Venture will be proportionately
reduced) and Davis will contribute $15 million in cash in consideration of a 60%
interest in the Kimmswick Joint Venture. Generally, LLK's interest in the
Kimmswick Joint Venture will not be reduced below 20%. In addition, Davis agrees
either to obtain financing on behalf of the Kimmswick Joint Venture or provide
additional capital to the Kimmswick Joint Venture in amounts aggregating an
additional $57 million. Such additional capital contributions by Davis would be,
depending upon the circumstances under which such contributions are made, either
treated as preferred capital contributions or result in Davis receiving an
increased interest in the Kimmswick Joint Venture. In the event that the costs
of completing the first two phases of the Missouri Project exceed $80 million,
each of LLK and Davis will have the right, but not the obligation, to make an
additional capital contribution to the Kimmswick Joint Venture based upon their
pro rata share of the additional amount of required funding. If only one of such
partners elects to contribute additional capital, the contributing partner may
elect to withdraw such contribution, to advance the non-contributing partner's
share and have the entire contribution treated as a loan to the joint venture or
to advance the non- contributing partner's share and have the entire
contribution treated as an additional capital contribution (which will result in
a proportionate adjustment of the partners' respective interests in the joint
venture). The partners will have no other right or obligation to make additional
capital contributions to the joint venture.
The obligations of Davis to contribute capital to, or otherwise provide
financing to, the Kimmswick Joint Venture are subject to satisfaction of
numerous conditions, including that there shall be no governmental regulation
that is likely to increase the cost of, or diminish the EBITDA to be generated
by, the Missouri Project in amounts exceeding certain thresholds and that a
gaming license shall have been obtained from the Missouri Gaming Commission.
There can be no assurance that any of such conditions will be satisfied and,
therefore, there can be no assurance that the Kimmswick Joint Venture will be
funded.
Development of the Missouri Project is subject to approval by gaming
authorities in the State of Missouri. The Company has filed an application
seeking such approval. The State of Missouri investigates applicants at its
discretion and there can be no assurance that the Company's application will be
actively reviewed in future periods. In addition, a person owning real property
adjacent to the site of the Kimmswick Project was seeking to overturn decisions
by the Jefferson County Commission (the "Commission") with respect to the zoning
of such site. A trial was conducted in April 1996 and the court decided to
uphold the zoning decisions made by the Commission.
Beginning with the first quarter in which the Kimmswick Joint Venture has
operating income, the joint venture will distribute 80% of its Available Funds
(defined as net income less debt repayments and capital expenditure and other
reserves) in each of the first three fiscal quarters of each fiscal year to the
partners and, at the end of each fiscal year, the joint venture will distribute
an amount which, together with all other amounts previously distributed during
such fiscal year, equals 90% of Available Funds for such fiscal year. All
distributions of Available Funds shall be made first to Davis to the extent of
its priority or preferred interest and then to the partners in proportion to
their respective interests in the joint venture. LLK will also be entitled to
certain additional distributions to the extent that its tax liability in respect
of the joint venture exceeds the amount otherwise distributed to it.
The Kimmswick Agreement provides that the Company will manage the Kimmswick
Joint Venture for a five-year term. The Company will be paid a management fee
equal to 2% of the joint venture's gross revenues plus 7% of the EBITDA of the
joint venture but such management fee will in no event exceed 4% of the joint
venture's gross revenues and the aggregate
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
management fee in any year plus the amount of all distributions to LLK in such
year generally will not exceed the amount of distributions to Davis in such
year. LLK's continued engagement as manager of the Kimmswick Joint Venture will
be dependent upon, among other things, the achievement of certain performance
standards. In addition, upon meeting certain other performance criteria, LLK
will have the unilateral right to manage the Kimmswick Joint Venture for an
additional five years.
The Company has provided no reserve for the assets designated for the
Kimmswick Joint Venture. Management believes that the project is viable and that
the assets as of December 31, 1996 are stated at estimated net realizable value.
This assumption is based upon expected future economic, market and gaming
regulatory conditions. Changes in these assumptions could result in changes in
the estimated net realizable value of the property.
Vicksburg, Mississippi
The Company's planned casino project in Vicksburg, Mississippi is expected
to be located on approximately 23.9 acres of land owned by the Company
immediately south of the I-20 bridge along the Mississippi River, with access to
Washington Street (the "Vicksburg Project"). The original Vicksburg Project
plans include a "Monte Carlo" themed 32,000 square foot dockside casino, a
250-room hotel, 934 parking spaces, restaurant facilities and an arcade. A
gaming license was granted to LLV on August 18, 1994. As of December 31, 1996,
approximately $14.4 million has been spent by the Company to develop the
Vicksburg Project (including approximately $7.0 million to acquire the land).
Reserves of $3.8 million were provided in 1994 to reduce the carrying value of
the Vicksburg Project assets to estimated net realizable value. The Company
currently estimates that it will cost an additional $47.9 million to complete
construction and commence operations of the Vicksburg Project. The Company has
ceased committing material amounts of capital to the Vicksburg Project and is
considering alternatives to provide a return on its investment in the Vicksburg
Project, either through formation of a joint venture to complete and operate the
project, or through the sale of certain assets related thereto. There can be no
assurance that the Company will form a joint venture or sell such assets.
Management's calculation of net realizable value is based upon assumptions
regarding future economic, market and gaming regulatory conditions including the
viability of the Vicksburg site for the development of a casino project. Changes
in these assumptions could result in changes in the estimated net realizable
value of the property.
Environmental Matters
The Company is subject to certain federal, state and local environmental
protection, health and safety laws, regulations and ordinances that apply to
businesses generally, such as the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, CERCLA, the Occupational Safety and
Health Act, and similar state statutes. The Colorado casino operations of Lady
Luck Central City are located generally within the Central City/Clear Creek
Superfund Site as designated by the EPA pursuant to CERCLA. The Superfund 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 cleanup by the EPA and the State of Colorado. CERCLA requires
cleanup 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 ordering Potentially Responsible Parties
("PRP's") to clean up or contribute to the cleanup of a Superfund site. PRP's
are broadly defined under CERCLA, and include past and present owners and
operators of a site. Courts have interpreted CERCLA to impose strict, joint and
several liability upon all persons liable for response costs.
The Vicksburg Site had been used as a bulk petroleum storage facility since
the early 1950's, and contained above ground storage tanks and barge and truck
loading docks associated with that operation. Known releases of petroleum
products from three of the seven tanks have occurred since 1986, along with
other small releases at various locations on site. The Subsurface Assessment of
the environmental condition of the site by an outside environmental consultant
indicated that certain
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
of the soils at the site were contaminated with petroleum hydrocarbons and
associated volatile organic compounds, and that such contamination was present
in significant concentrations in some locations on site.
Remediation efforts at the Vicksburg Site are complete. Under the terms of
the acquisition of the Vicksburg Site, the purchase price for the Vicksburg Site
of $4.5 million was placed in an escrow account, with all costs incurred to
remediate environmental conditions on site paid out of such escrow account (with
any funds remaining after remediation going to the seller of the Vicksburg
Site). On February 21, 1996, the Mississippi Department of Environmental Quality
determined that the environmental remediation conducted by the seller meets all
federal and state standards, and has certified that no further action is
required. The entire remediation cost was paid out of the escrow fund, and the
Company did not incur any of these costs. However, no assurance can be provided
that the Mississippi Department of Environmental Quality or the Federal
Environmental Protection Agency will not alter target cleanup levels in the
future, resulting in additional cleanup requirements. This would expose the
Company to additional liability as the owner of the property, and could result
in a material delay of the construction of new facilities on-site.
In the course of conducting the environmental investigation at the proposed
site for Lady Luck Gulfport, the Company identified certain contamination at the
site. Pursuant to an administrative order issued by the Mississippi Department
of Environmental Quality, the Company undertook remedial activities, including
soil remediation and the installation of groundwater monitoring wells. No
additional remediation is currently required, although some additional soil
remediation may be required in the course of obtaining a building permit.
Although there can be no assurances, the Company believes that the cost of such
additional soil remediation, if any, will not be material.
Although the Company knows of no other pre-existing conditions at the
intended sites for its development or pre-development stage projects that will
result in any material environmental liability or delay, there can be no
assurance that pre-existing conditions will not be discovered and result in
material liability or delay to the Company.
Other than those described, the Company has not made, and does not
anticipate making, material expenditures with respect to such environmental
protection, and health and safety laws and regulations; accordingly, no accrual
for any costs has been made. However, the compliance or cleanup costs associated
with such laws, regulations and ordinances may result in future additional costs
to the Company's operations.
For properties currently in operation or under development, the Company has
taken extra precautions to minimize the possibility of environmental
contamination. The Company does not believe that any significant capital
expenditures to monitor or reduce hazardous substances or other environmental
impacts are currently required. As a result, near term reclamation obligations
are not expected to have a significant impact on the Company's liquidity.
17. Expansion Project and Hotel Acquisitions
Country Casino, Pavilion and Riverbluff
In an endeavor to service excess demand, defend its market position in
light of the project additions and enhancements planned or under construction at
competing casinos in neighboring Tunica County, Mississippi, and satisfy certain
provisions of its land lease, MLI expanded its casino and non-gaming facilities
during 1996. The expansion project (the "Expansion"), which opened on May 21,
1996, is made up of the "Country Casino" and the "Pavilion." Country Casino
offers approximately 33,000 square feet of casino space, and as of February 28,
1997 approximately 680 slot machines, including slot machines transferred from
Lady Luck Rhythm & Blues, 18 table games, six poker tables and a food court. The
Pavilion consists of approximately 25,000 square feet of entertainment and event
space and two movie theaters, an arcade and a logo shop. In addition, the
Expansion includes approximately an additional 650 parking spaces. On July 3,
1996, MLI acquired the
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
Riverbluff in Helena, Arkansas. The Riverbluff is located at the Arkansas
entrance to the bridge which crosses the Mississippi River and provides
immediate access to its Coahoma County, Mississippi facilities. The Riverbluff
features 120 guest rooms, adding to the existing 173 guest rooms at the Coahoma
County Mississippi site. The Company purchased the Riverbluff for approximately
$1.0 million, comprised of cash of $0.6 million and a mortgage note for the
balance.
River Park
On April 15, 1996, LLM purchased from River Park Hotel Group, Inc. (the
"Seller") the River Park, a 147-room hotel in Natchez, Mississippi. The Company
purchased the River Park for $4.0 million, with $1.0 million paid in cash at
closing together with a non-recourse promissory note on the unpaid balance at
the prime rate plus 1.5% with equal quarterly installments (based on a twenty
year amortization schedule) and a balloon payment due on the tenth anniversary
date of such note. The River Park was purchased subject to an existing lien for
an outstanding note on the property which was retained with the Seller upon
purchase. In accordance with the purchase agreement, the Seller must apply the
Company's quarterly installments to pay down the note the balance of which was
$830,000 at April 15, 1996. Upon final payment of the outstanding note, the lien
will be removed and clear title will revert to the Company.
18. Natchez Joint Venture
In February 1996, the Company had executed a definitive joint venture
agreement (the "Natchez Agreement") to form a joint venture (the "Natchez Joint
Venture") with Holstar, Inc., a Virginia corporation ("Holstar") to own and
operate the dockside casino, currently operated by the Company in Natchez,
Mississippi, and the 125-room Eola Hotel, owned by Holstar. During 1996, the
Company has elected to terminate the Natchez Agreement and not pursue formation
of a joint venture. The Company retained deposits forfeited by Holstar of $0.3
million upon termination. Certain conditions which had not been met entitled the
Company to terminate the Natchez Agreement at its discretion.
19. Summarized Financial Information
Summarized balance sheet information of LLK, a partially owned subsidiary
of LLGC, as of December 31, 1996 and 1995, for which assets of the subsidiary
collateralize the outstanding 2001 Notes, is as follows (in thousands):
December 31, 1996 December 31, 1995
Current assets $ 50 $ 50
Property and equipment 726 726
Other assets 1,403 1,150
Total assets $ 2,179 $ 1,926
Current liabilities $ - $ -
Long-term liabilities 2,429 2,176
Stockholders' deficit (250) (250)
Total liabilities and
stockholders' deficit $ 2,179 $ 1,926
LLK had no operations for the years ended December 31, 1996, 1995 and 1994.
Stockholders' deficit represents the write- down of certain project development
costs during 1994.
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
The following subsidiaries of the Company are not guarantors of the 2001
Notes: LLDC, Lady Luck Cape Girardeau and Lady Luck Lawrenceburg. Each
subsidiary that is not a guarantor of the 2001 Notes is currently inactive. It
is the intent of the Company to wind down the operations of these subsidiaries.
Accordingly, no separate financial information is being provided with respect to
these non-guarantor subsidiaries.
Substantially all assets of Lady Luck Gaming Finance Corporation and
subsidiaries collateralize 2001 Notes. The following presents summarized
consolidated balance sheets as of December 31, 1996 and 1995 and summarized
consolidated statements of operations for each of the years ended December 31,
1996, 1995 and 1994, for Lady Luck Gaming Finance Corporation and subsidiaries.
<TABLE>
<CAPTION>
LADY LUCK GAMING FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1996 and 1995
(in thousands)
ASSETS
<S> <C> <C> <C>
December 31, December 31,
1996 1995
Current assets:
Cash and cash equivalents................. $ 15,371 $ 22,146
Restricted cash........................... - 8,858
Accounts receivable....................... 1,223 396
Inventories............................... 1,198 885
Prepaid expenses.......................... 2,412 2,418
Total current assets.................. 20,204 34,703
Total property and equipment, net............. 172,603 154,954
Other assets:
Pre-opening costs......................... 1,353 1,100
Deferred financing fees and costs, net 3,605 4,470
Investment in unconsolidated
affiliates, net....................... 21,449 17,619
Other..................................... 3,117 2,491
29,524 25,680
TOTAL ASSETS.................................. $ 222,331 $ 215,337
</TABLE>
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
LADY LUCK GAMING FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1996 and 1995
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31, December 31,
1996 1995
<S> <C> <C>
Current liabilities:
Current portion of long-term debt......... $ 3,288 $ 5,622
Accrued interest.......................... 1,818 2,326
Accounts payable.......................... 4,358 2,234
Construction and retention payables....... 1,957 3,126
Due to Related Party...................... 20,971 25,670
Other accrued liabilities................. 7,277 7,566
Total current liabilities............. 39,669 46,544
Mortgage notes payable................ 173,500 173,500
Other long-term debt.................. 7,506 3,338
Total liabilities................ 220,675 223,382
Commitments and contingencies
Stockholders' equity (deficit):
Retained earnings/(accumulated
deficit)......................... 1,656 (8,045)
Total stockholders' equity (deficit) 1,656 (8,045)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)............................. $ 222,331 $ 215,337
</TABLE>
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
LADY LUCK GAMING FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
1996 1995 1994
<S> <C> <C> <C> <C>
Revenues:
Gross revenues................... $ 174,234 $ 158,412 $ 125,134
Less: Promotional allowances (12,527) (8,821) (7,979)
Net revenues..................... 161,707 149,591 117,155
Costs and expenses:
Operating department expenses 66,041 60,262 50,300
Selling, general and administrative 46,994 46,536 44,372
Related party management/license
fees........................... 5,586 5,520 2,471
Depreciation and amortization 11,170 9,586 6,999
Settlement of a claim............ 1,100 - -
Pre-opening expenses............. 247 - 2,970
Project development cost write-
downs and reserves............. 354 350 9,528
Abandonment loss................. - - 9,344
Total costs and expenses......... 131,492 122,254 125,984
Operating income (loss).......... 30,215 27,337 (8,829)
Other income (expense):
Interest income.................. 1,030 1,208 1,717
Interest expense................. (22,165) (20,049) (16,909)
Other............................ 690 75 (157)
Income (loss) before income tax
(provision) benefit and
extraordinary items.............. 9,770 8,571 (24,178)
Income tax (provision) benefit........ (69) (401) 1,171
Income (loss) before extraordinary
item............................. 9,701 8,170 (23,007)
Extraordinary gain on early
extinguishment of debt........... - 2,257 1,115
NET INCOME (LOSS)..................... $ 9,701 $ 10,427 $ (21,892)
</TABLE>
<PAGE>
ITEM 14(d)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Lady Luck Bettendorf, L.C.:
We have audited the accompanying balance sheets of LADY LUCK BETTENDORF,
L.C. (the "Company") (an Iowa limited liability company) as of December 31,
1996, and 1995, and the related statements of operations, changes in members'
equity and cash flows for the year ending December 31, 1996 and for the period
April 21, 1995 (commencement of operations) to December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LADY LUCK BETTENDORF, L.C.
as of December 31, 1996, and 1995, and the results of its operations and its
cash flows for the year ended December 31, 1996 and for the period April 21,
1995, to December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 26, 1997
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK BETTENDORF, L.C.
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
ASSETS
<S> <C> <C>
1996 1995
CURRENT ASSETS:
Cash and cash equivalents $5,119,000 $2,569,000
Accounts receivable, net of allowance for doubtful
accounts of $181,000 and $80,000, respectively 10,000 106,000
Inventories 125,000 75,000
Prepaid expenses and other current assets 681,000 392,000
Total current assets 5,935,000 3,142,000
PROPERTY AND EQUIPMENT:
Leasehold improvements 4,069,000 4,018,000
Furniture, fixtures and equipment 7,042,000 5,674,000
11,111,000 9,692,000
Less: Accumulated depreciation (1,822,000) (676,000)
9,289,000 9,016,000
Construction in progress 3,146,000 2,419,000
Total property and equipment, net 12,435,000 11,435,000
Total assets $18,370,000 $14,577,000
LIABILITIES AND MEMBERS' EQUITY:
CURRENT LIABILITIES:
Current portion of long-term debt $1,245,000 $3,332,000
Accounts payable 1,334,000 958,000
Accounts payable - affiliates 210,000 24,000
Accrued gaming taxes 610,000 534,000
Accrued progressive & slot club liabilities 590,000 576,000
Token and chip liability 221,000 80,000
Accrued liabilities 1,282,000 1,604,000
Total current liabilities 5,492,000 7,108,000
Long-term debt, less current portion 1,107,000 1,880,000
Total liabilities 6,599,000 8,988,000
MEMBERS' EQUITY 11,771,000 5,589,000
Total liabilities and members' equity $18,370,000 $14,577,000
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK BETTENDORF, L.C.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD APRIL 21, 1995
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
<S> <C> <C>
1996 1995
REVENUES:
Casino $ 62,202,000 $ 34,807,000
Food and beverage 5,680,000 2,933,000
Other 664,000 385,000
Gross revenues 68,546,000 38,125,000
Less: Promotional allowances (3,344,000) (1,650,000)
Net revenues 65,202,000 36,475,000
COSTS AND EXPENSES:
Casino 16,080,000 9,057,000
Food and beverage 2,413,000 1,572,000
Gaming and admission taxes 15,731,000 8,477,000
Management fees - affiliates 1,579,000 782,000
Marine operations 2,340,000 1,515,000
Selling, general and administrative 12,766,000 7,688,000
Rental expense - affiliates 5,760,000 3,881,000
Other expenses 945,000 437,000
Depreciation 1,156,000 676,000
Pre-opening expenses - 2,467,000
Total costs and expenses 58,770,000 36,552,000
Operating income(loss) 6,432,000 (77,000)
Interest income 51,000 34,000
Interest expense (301,000) (368,000)
------------ ------------
Net income(loss) $ 6,182,000 $ (411,000)
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK BETTENDORF, L.C.
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD APRIL 21, 1995
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
<S> <C> <C> <C>
Bettendorf
Riverfront
Lady Luck Development
Quad Cities, Inc. Company, L.C. Total
Contributed capital $3,000,000 $3,000,000 $ 6,000,000
Net Loss (206,000) (205,000) (411,000)
Balance at December 31, 1995 2,794,000 2,795,000 5,589,000
Net Income 3,091,000 3,091,000 6,182,000
Balance at December 31, 1996 $5,885,000 $5,886,000 $11,771,000
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LADY LUCK BETTENDORF, L.C.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD APRIL 21, 1995
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
<S> <C> <C>
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $6,182,000 $ (411,000)
Adjustments to reconcile net income(loss) to net cash
provided by operating activities:
Depreciation 1,156,000 676,000
Pre-opening expenses - 2,467,000
(Increase) decrease in operating assets:
Accounts receivable, net 96,000 (106,000)
Inventories (50,000) (75,000)
Prepaid expenses and other current assets (289,000) (392,000)
Increase (decrease) in operating liabilities:
Accounts payable (including affiliates) 562,000 982,000
Accrued gaming taxes 76,000 534,000
Accrued gaming liabilities 155,000 656,000
Other current liabilities (322,000) 1,604,000
Net cash provided by operating activities 7,566,000 5,935,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions (1,362,000) (5,049,000)
Construction in progress (727,000) (2,419,000)
Pre-opening costs - (2,467,000)
Net cash used in investing activities (2,089,000) (9,935,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from borrowings 645,000 2,833,000
Payments on debt (3,572,000) (2,264,000)
Proceeds from contributed capital - 6,000,000
Net cash provided(used)in financing activities (2,927,000) 6,569,000
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,550,000 2,569,000
CASH AND CASH EQUIVALENTS:
Beginning of period 2,569,000 -
End of period $5,119,000 $2,569,000
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest net of amounts capitalized of $100,000 $301,000 $368,000
and $50,000 for 1996 and 1995, respectively
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
LADY LUCK BETTENDORF, L.C.
STATEMENTS OF CASH FLOWS (continued)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD APRIL 21, 1995
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The Company entered into several contracts with manufacturers for the
purchase of slot machines which totaled approximately $67,000 and $4,643,000 for
the year ended December 31, 1996 and the period ended December 31, 1995.
During 1996, approximately $2,556,000 of long-term debt was refinanced at
more favorable terms to the Company.
The accompanying notes are an integral part of these statements.
<PAGE>
LADY LUCK BETTENDORF, L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. THE COMPANY
Bettendorf Riverfront Development Company, L.C. ("BRDC") and Lady Luck Quad
Cities, Inc. ("LLQC") formed an Iowa limited liability company, Lady Luck
Bettendorf, L.C. (the "Company") for the purpose of operating a riverboat casino
on the Mississippi River based in Bettendorf, Iowa. Under the terms of the
Articles of Incorporation, the Company's term will expire in 2065. BRDC and LLQC
each contributed $3.0 million for a 50% membership interest in the Company. All
net profits and losses from all operations of the Company are allocated equally
between LLQC and BRDC. BRDC and LLQC are each represented by two managers with
most management decisions of the Company, including capital calls and
distributions, requiring the approval of the majority of the managers.
The Company commenced operations on April 21, 1995. The Company is located
on a leased parcel of land which is adjacent to Interstate 74 on the Mississippi
River. The Company's operation consists of a 30,000 square foot casino on a
gaming vessel, which is approximately 300 feet by 100 feet, an entertainment
area for parties, shows, and special events and, as of December 31, 1996, a
gaming area with approximately 44 table and card games and 856 slot machines.
The vessel has gaming operations on three floors. The first floor has a 19th
Century Iowa River theme, the second floor has a sports theme (including a 300
seat showroom) and the poker room is on the third floor. The vessel is certified
for 2,500 passengers including crew. Other related facilities include a
restaurant, gift shop, commercial center, sports bar and showroom and 1,000
parking spaces. The Company's market is concentrated in the local Quad City area
and the Chicago area serviced by ongoing bus programs.
The Company is currently seeking financing for a $35.0 million project that
includes a 260 room hotel, a 500 car parking garage, an overpass that would
allow vehicles to cross over active railroad tracks, and a 30 to 100 slip
marina. The Company is negotiating with the City of Bettendorf to provide up to
$7.5 million in tax increment financing that would be used for the construction
of the parking garage, overpass and marina. The commercial center would be
developed for administrative offices, banquet/meeting room space, and retail
establishments. The Company is negotiating with a financial institution. The
Company expects to use approximately $5.0 million of its funds for the
development of the project.
AGREEMENTS
City of Bettendorf "Development Agreement"
The Company entered into an agreement with the City of Bettendorf, a
municipal corporation of the State of Iowa, for the purpose of developing a
gaming operation in the city. In return for certain conditions, the City of
Bettendorf endorsed and supported the Company in obtaining an Iowa gaming
license. The Company is in compliance with the conditions of the agreement as
follows:
a. The Company obtained an Iowa gaming license effective April 1, 1995 and
began operations on April 21, 1995.
b. The Company was to use commercially reasonable efforts to facilitate
completion of the existing shopping center improvements so that the commercial
center would be opened for business on or before September 1, 1996 (See Note 6).
The commercial center was opened in October 1995 for the holiday
<PAGE>
season and is expected to be utilized as part of the hotel project discussed
above.
c. The Company is to pay a development fee to the City of Bettendorf of 2%
on adjusted gross receipts exceeding $35,000,000 but not to exceed $44,000,000
during any twelve month period starting on the day gaming operations began,
April 21. The maximum revenues subject to the 2% fee would be $9,000,000
resulting in maximum fees of $180,000. The Company has accrued fees of $180,000
and $128,000 as of December 31, 1996 and 1995, respectively.
Riverbend Regional Authority "Operator's Contract"
The Company entered into an agreement with the Riverbend Regional
Authority, an Iowa not-for- profit corporation (the "RRA") and the holder of the
Iowa gaming license, to operate a gaming boat. The Company is in compliance with
the conditions of the agreement as follows:
a. The Company has obtained and is operating a riverboat gaming facility
with a minimum capacity of 900 gaming positions.
b. The Company is to pay RRA $1.00 for each of the first 500,000 admissions
and $1.50 for each admission in excess thereof computed on an annual basis
commencing on the date gaming operations began, April 21. These admission fees
are paid weekly.
c. If the adjusted gross gaming receipts exceed $44,000,000 during any
twelve month period starting on the day gaming operations began, the Company is
required to pay to RRA 2% of any such excess. The Company exceeded this level on
or about December 30, 1996 and began to make these additional contributions
weekly. The Company will pay these contributions weekly until April 20, 1997
(the end of the RRA fiscal year for this purpose) and will expense these
contributions as they are paid.
d. The Company has executed a "Development Agreement" with the City of
Bettendorf as required by this agreement.
Lady Luck Casino, Inc. "Casino Management Agreement"
The Company entered into an agreement with Andrew H. Tompkins and Lady Luck
Casino, Inc. ("LLCI"), a Nevada corporation, to manage the operations of the
Company. In May 1996, Lady Luck Gaming Corporation ("LLGC") (the "Management
Company"), a Delaware corporation, replaced LLCI as the manager of the casino.
Andrew H. Tompkins, LLCI and LLGC are all affiliates of the Company. The
Management Company is to supervise and control the Company's operations, provide
marketing and accounting services, allow the use of the Lady Luck name in
connection with the operations and access to the customer list. Cash payments
made by the Company to LLCI, LLGC and their affiliates for services provided to
the Company or payments made on behalf of the Company for marketing and
advertising production, medical and other insurance, 401(k) plan contributions
and other items totaled approximately $1,885,000 and $998,000 for the year and
period ended December 31, 1996 and 1995, respectively, excluding management fees
and rental expenses paid to these related parties. The Management Company
believes that all expenses and costs applicable to the Company are reflected in
the accompanying financial statements on a basis which is representative of what
they would have been if the Company operated on a stand-alone basis. Highlights
of the agreement are as follows:
a. Term - The term of the "Casino Management Agreement" is from September
30, 1994 to September 30, 2033.
b. Management Fee - A management fee of 2% of gaming gross revenues (as
defined) plus 7% of earnings before income tax, depreciation and amortization
(as defined), together not to exceed 4% of the annual casino gross revenue (as
defined), will be paid to the Management Company. Effective in June 1996,
<PAGE>
the management fee was reduced by $37,500 per month. The management fees
incurred during the periods ended December 31, 1996 and 1995 were approximately
$1,579,000 and $782,000, respectively. The outstanding and unpaid management
fees at December 31, 1996 and 1995, were approximately $70,000 and $582,000,
respectively. BRDC will provide consulting services concerning licensing,
staffing, and management of the marine aspects of the gaming vessel and any land
based development. The Management Company is to pay part of its fee, up to
$325,000 annually, to BRDC for these consulting services.
c. Working Capital Reserve - The agreement requires that $500,000 be
maintained in a casino bank account (as defined) as working capital for all
financial needs of the casino. At December 31, 1996 and 1995, the casino bank
account had a book balance of approximately $2,400,000 and $315,000,
respectively. On December 28, 1995, approximately $302,000 was withdrawn from
this account for operating cash during the New Year's weekend. On January 2,
1996, approximately $1,089,000 was deposited back into this account.
d. Maintenance Capital Improvements and Furniture, Fixtures and Equipment
"Replacement Reserve Account" - The Management Company is required to reserve a
percentage of Casino Gross Revenues (as defined) each year (the "Replacement
Reserve Account") to pay the cost of additions to and replacements of furniture,
fixtures and equipment, and to provide for capital improvements as follows:
- 1st operating year 1.5%
- 2nd operating year 2.5%
- 3rd operating year 3.0%
- 4th operating year 4.0%
- 5th operating year and each year thereafter 5.0%
Although funds have not been segregated into a replacement account, this
requirement has been constructively met. The Company has made and paid for
replacements and capital improvements from the Casino Bank Account, in excess of
the approximately $1,555,000 and $522,000 that should have been funded as of
December 31, 1996 and 1995, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. 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, but
management believes they will not be material.
b. Cash and Cash Equivalents - The Company considers all highly liquid
investments purchased with original maturity of three months or less as cash
equivalents. The carrying amount of cash and cash equivalents approximates its
fair value.
c. Inventories - Inventories are stated at the lower of cost, as determined
by the first-in, first-out method, or market value.
<PAGE>
d. Property and Equipment - Property and equipment are stated at cost.
Included in the cost of the commercial center is interest incurred during the
construction period of approximately $100,000 and $50,000 incurred in 1996 and
1995, respectively. Depreciation is computed using predominantly the
straight-line method for financial reporting purposes and accelerated methods
for income tax purposes. Estimated useful lives for financial reporting purposes
are as follows:
Leasehold improvements 15-20 years
Furniture, fixtures and equipment 5-7 years
Costs of major improvements are capitalized, while costs of normal repairs
and maintenance are charged to expense as incurred. Portions of furniture,
fixtures and equipment are pledged as collateral for long-term debt (See Note
3).
e. Revenue Recognition -
Casino: In accordance with gaming industry practice, the Company recognizes
as casino revenues the net win from gaming activities, which is the difference
between gaming wins and losses. Casino revenues are net of accruals for
anticipated payouts of progressive slot jackpots and certain table games. Such
anticipated jackpot payments are reflected as current liabilities in the
accompanying balance sheets.
Food, Beverage, Entertainment and Gift Shop: Revenues from food, beverage,
entertainment and the gift shop are recognized at the time the related service
or sale is performed/made.
f. Promotional Allowances - The retail value of food, beverage and other
items provided on a complimentary basis to customers without charge are included
in gross revenues and then deducted as promotional allowances. The estimated
cost of providing these promotional allowances are included in casino
departmental expenses for the years ended December 31, 1996 and 1995 as follows:
1996 1995
Food and Beverage $2,981,000 $1,693,000
Gift Shop 50,000 45,000
Total $3,031,000 $1,738,000
g. Mad Money Estimates - The Company provides Slot patrons incentives based
on the dollar amount of play on slot machines. An accrual has been established
based on an estimate on the outstanding value, utilizing the age and prior
history of redemptions. This amount is reflected as a current liability on the
accompanying balance sheets.
h. Advertising - Advertising costs are expensed the first time such
advertisement appears. Total advertising costs (including direct mail marketing)
were approximately $1,399,000 and $1,050,000 in 1996 and 1995, respectively.
i. Pre-Opening Costs - Pre-opening costs include direct incremental project
salaries and other pre-opening costs incurred during the pre-opening phase of
projects. All pre-opening costs directly related to construction of projects
were capitalized as incurred and were charged to expense in the period each
project commenced operations.
j. Income Taxes - No provision for U.S. federal income taxes or state
income taxes is recorded in the financial statements as such liability is the
responsibility of the members.
k. Reclassification - Certain 1995 balances have been reclassified to
conform to 1996 presentation.
<PAGE>
3. LONG-TERM DEBT
At December 31, 1996, long-term debt consisted of the following:
a. Northwest Bank and Trust Co. - Interest of
9.25%; principal payment of $100,000 per
month plus interest; due on demand not
earlier than February 1998 and no later than
October, 1998; collateralized by gaming
equipment and guaranteed up to $1,600,000
by affiliates of BRDC. $2,300,000
b. Sigma Note - Imputed interest of 8%;
payment of $3,716 per month; for eighteen
months; due in March 1998; collateralized by 52,000
gaming equipment. 2,352,000
Less: current portion (1,245,000)
Total long-term debt $1,107,000
At December 31, 1995, long-term debt consists of the following:
a. International Gaming Technology (IGT) Note -
Imputed interest of 13.5% interest during the
first twelve months and prime plus 7% during
the last twelve months; monthly principal
payments of $187,872 during the first twelve
months and principal plus interest during the
final twelve months; due March 1997;
collateralized by IGT gaming equipment. $2,733,000
b. Bally's Note - Interest of 11%; payment of
$4,451 per month; for twelve months; due July
1996; collateralized by Bally gaming 26,000
equipment.
c. Bally's Note - Interest of 11%; payment of
$4,451 per month; for twelve months; due
September 1996; collateralized by Bally
gaming equipment. 34,000
d. Bally's Note - Interest of 11%; payment of
$2,225 per month; for twelve months; due
September 1996; collateralized by Bally
gaming equipment. 17,000
e. Rock Island Note - A construction loan with a
maximum principal sum of $2,500,000; interest
of 1% over prime; monthly interest only
payments until May of 1996 then monthly
interest plus $125,000 principal; due December
1997; collateralized by the Commercial Center. 2,402,000
5,212,000
<PAGE>
Less: current portion (3,332,000)
Total long-term debt $1,880,000
Prior to December 31, 1996, the Company obtained financing from Northwest
Bank at terms more favorable to the Company to repay the IGT and Bally notes
prior to their scheduled maturity.
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following as of December 31,:
1996 1995
Accrued salaries, vacation and bonuses $ 481,000 $ 670,000
Accrued management fee - affiliates 70,000 582,000
Accrued taxes 479,000 293,000
Other 252,000 59,000
Total accrued liabilities $1,282,000 $1,604,000
5. RELATED PARTY TRANSACTIONS
The Company has entered into long-term operating leases with related
parties. They are as follows:
a. Land - The Company has entered into a long-term operating lease
agreement with BRDC. The lease is for an initial term of 10 years with six 10
year options. The parties have set the lease payment at $150,000 per month,
based on the appraised value. The Company has an option to purchase the land
during the initial term of the lease for its appraised fair market value.
b. Boat - The Company has entered into a long-term operating lease, a
charter hire lease, with LLGC and Lady Luck Kimmswick, Inc., a Missouri
corporation. This lease is for an initial term of 5 years with a 10 year option.
The lease payment is $189,000 per month, before use tax. The Company has an
option to purchase the Boat during the initial term of lease for its appraised
fair market value.
c. Equipment - The Company has entered into a long-term operating lease
with Lady Luck Gaming Finance Corporation to lease equipment. The lease is for
an initial term of 36 months with two 1 year renewal options. The lease payment
of $122,000 per month was modified in June, 1996 via a written agreement between
the parties. Previously, the Company had been paying $100,000 per month.
6. COMMERCIAL CENTER DEVELOPMENT
The original gaming license granted to the Company in January 1995 by the
Iowa Racing and Gaming Commission (the "IRGC") was conditioned upon the
Company's construction of a 76,000 square foot commercial center, on or before
April 1, 1996. The Company fulfilled this commitment by accelerating
construction of the center. In October 1995, the Company completed construction
of a 90,000 square foot center and opened a winter warehouse sale featuring 14
national and local tenants. In January 1996, the IRGC determined that the
Company had fulfilled all of its obligations and conditions, and renewed the
Company's annual gaming license through March 31, 1997, without further
conditions.
Since completion of the center and the winter warehouse sale, the Company
has utilized the center for a variety of purposes. The center has hosted a
number of arts and crafts shows, trading card and memorabilia displays, flea
markets, and other events of local and regional interest. On December 31, 1996,
Jester's Comedy Club opened for business in the center, occupying 5,000 square
feet. The Company's future
<PAGE>
plans for the center include retail, restaurant, and banquet facilities in
connection with the proposed development of a full-service hotel, on the site
adjacent to the center. As the Company executes these plans, additional tenant
and other construction costs will be incurred, the amount of which depends on
the specific plan. Management intends to fund these costs from operations.
7. LITIGATION
On January 18, 1997, a lawsuit was filed in the United States District
Court for the Central District of Illinois, Peoria Division, asserting claims in
excess of $2,000,000 for malicious prosecution and intentional infliction of
emotional distress arising from the plaintiff's arrest for theft after the
plaintiff stopped payment on $20,000 in checks at the casino in August 1995. The
Company is in the discovery stage and cannot predict the ultimate outcome of
this lawsuit, at this time.
8. COMMITMENTS AND CONTINGENCIES
Lease Commitments - Future minimum lease payments for the land, boat and
gaming equipment required under operating leases that have non-cancelable lease
terms in excess of one year as of December 31, 1996, are as follows:
1997 $ 6,118,000
1998 4,805,000
1999 4,256,000
2000 4,251,000
2001 4,248,000
Thereafter 13,656,000
Total $ 37,334,000
9. EMPLOYEE SAVINGS PLAN
LLGC's 401(k) Savings Plan became effective on November 1, 1994. Under the
plan, all of the employees of the Company after the completion of one year of
service, including at least 1,000 hours of credited service, as defined, are
eligible to participate in the plan. Eligible employees can contribute from 1%
to 15% of their compensation on a pre-tax basis. For each $1.00 of contribution
from the employee, the Company plans to match $0.25 on behalf of the employee,
with the employee contribution to be matched not to exceed 4% of the employee's
compensation. However, the matching percentage by the Company can vary each
year. During 1996 and 1995, 492 and 10 employees, respectively, were eligible
for the plan and 125 and 4 employees, respectively, participated in the plan.
The Company's matching contribution was $18,328 and $375 for 1996 and 1995,
respectively.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable
PART III
The Board of Directors of LLGC has established July 23, 1997 as the
annual meeting date of shareholders.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item will be set forth in LLGC's
Proxy Statement for the 1997 Annual Meeting of Shareholders of LLGC, which
information is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be set forth in LLGC's
Proxy Statement for the 1997 Annual Meeting of Shareholders of LLGC, which
information is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be set forth in LLGC's
Proxy Statement for the 1997 Annual Meeting of Shareholders of LLGC, which
information is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be set forth in LLGC's
Proxy Statement for the 1997 Annual Meeting of Shareholders of LLGC, which
information is incorporated by reference herein.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
Included in Part II of this Report:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations -- for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Mandatory Cumulative Redeemable
Preferred Stock and Stockholders'
Equity (Deficit) -- for the years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Cash Flows -- for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules.
Included in Part III of this Report -- Unconsolidated
financial statements Lady Luck Bettendorf, L.C., and
unconsolidated 50% or less owned investee accounted for
under the equity method included in Item 14(d):
Report of Independent Accountants
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations -- for the year ended
December 31, 1996 and the period from commencement of
operations on April 21, 1995 to December 31, 1995
Statements of Mandatory Cumulative Redeemable Preferred Stock
and Stockholders' Equity (Deficit) -- for the years ended
December 31, 1996 and the period from commencement of
operations on April 21, 1995 to December 31, 1995
Statements of Cash Flows -- for the years ended
December 31, 1996 and the period from commencement of
operations on April 21, 1995 to December 31, 1995
Notes to Financial Statements
(a)(3) Exhibits.
Exhibit
Number Description of Exhibits
3.1 Certificate of Incorporation of Lady Luck Gaming Corporation, as
amended. Incorporated by reference to Exhibit 3.1 to the Form S-1
Registration Statement filed by Lady Luck Gaming Corporation
under the Securities Act (No. 33-63930) (the "Form S-1").
3.2 By-Laws of Lady Luck Gaming Corporation, as amended. Incorporated
by reference to Exhibit 3.2 to the Form S- 1.
4.1 Indenture dated as of February 17, 1994 by and among Lady Luck
Gaming Finance Corporation, the Guarantors named therein and
First Trust National Association (the "Indenture"). Incorporated
by reference to Exhibit 4.1 to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 by Lady Luck Gaming
Corporation (the "Form 10-K").
4.2 Registration Rights Agreement dated as of February 17, 1994 by
and among Lady Luck Gaming Finance Corporation, the Guarantors
named therein and the Purchasers who were signatories thereto.
Incorporated by reference to Exhibit 4.2 to the Form 10-K.
4.3 Pledge Agreement dated as of February 17, 1994 from Lady Luck
Gaming Finance Corporation, as Pledgor to First Trust National
Association, as Trustee. Incorporated by reference to Exhibit 4.4
to the Form 10-K.
4.4 Pledge Agreement dated as of February 17, 1994 from Lady Luck
Gaming Finance Corporation, as Pledgor to First Trust National
Association, as Trustee. Incorporated by reference to Exhibit 4.4
to the Form 10-K.
4.5 Leasehold Deed of Trust, Assignment of Rents and Security
Agreement dated as of February 17, 1994 by and among Lady Luck
Gulfport, Inc., as Trustor, Jim B. Tohill as Trustee, and First
Trust National Association, as Beneficiary. Incorporated by
reference to National Exhibit 4.5 to the Form 10-K.
4.6 Leasehold Deed of Trust, Assignment of Rents and Security
Agreement dated as of February 17, 1994 by and among Lady Luck
Mississippi, Inc. as Trustor, Jim B. Tohill, as Trustee, and
First Trust National Association, as Beneficiary. Incorporated by
reference to Exhibit 4.6 to the Form 10-K.
4.7 Leasehold Deed of Trust, Assignment of Rents and Security
Agreement dated as of February 17, 1994 by and among Lady Luck
Tunica, Inc., as Trustor, Jim B. Tohill, as Trustee, and First
Trust National Association, as Beneficiary. Incorporated by
reference to Exhibit 4.7 to the Form 10-K.
4.8 Leasehold Deed of Trust, Assignment of Rents and Security
Agreement dated as of February 17, 1994 by and among Lady Luck
Biloxi, Inc., as Trustor, Jim B. Tohill, as Trustee, and First
Trust National Association, as Beneficiary. Incorporated by
reference to Exhibit 4.8 to the Form 10-K.
4.9 Leasehold Deed of Trust, Assignment of Rents and Security
Agreement dated as of February 17, 1994 by and among Magnolia
Lady, Inc., as Trustor, Jim B. Tohill, as Trustee, and First
Trust National Association, as Beneficiary. Incorporated by
reference to Exhibit 4.9 to the Form 10-K.
4.10 Leasehold Deed of Trust, Assignment of Rents and Security
Agreement dated as of February 17, 1994 by and among Gold Coin
Incorporated, as Trustor, Jim B. Tohill, as Trustee, and First
Trust National Association, as Beneficiary. Incorporated by
reference to Exhibit 4.10 to the Form 10-K.
4.11 First Preferred Vessel Mortgage on the Whole of the Lady Luck I
dated as of February 17, 1994 from Lady Luck Mississippi, Inc. in
favor of First Trust National Association. Incorporated by
reference to Exhibit 4.11 to the Form 10-K.
4.12 First Preferred Fleet Mortgage on the Whole of the Lady Luck
Tunica I and Lady Luck Tunica II dated as of February 17, 1994
from Lady Luck Tunica, Inc. in favor of First Trust National
Association. Incorporated by reference to Exhibit 4.12 to the
Form 10-K.
4.13 First Preferred Vessel Mortgage on the Whole of the Lady Luck
Biloxi, Inc. dated as of February 17, 1994 from Lady Luck Biloxi,
Inc. in favor of First Trust National Association. Incorporated
by reference to Exhibit 4.13 to the Form 10-K.
4.14 Security Agreement dated as of February 17, 1994 by and between
Lady Luck Kimmswick, Inc. and First Trust National Association.
Incorporated by reference to Exhibit 4.14 to the Form 10-K.
4.15 Security Agreement dated as of February 17, 1994 by and between
Lady Luck Vicksburg, Inc. and First Trust National Association.
Incorporated by reference to Exhibit 4.15 to the Form 10-K.
4.16 Deed of Trust, Assignment of Rents and Security Agreement dated
as of February 17, 1994 by and among Gold Coin Incorporated, the
Public Trustee of the County of Gilpin, State of Colorado and
First Trust National Association. Incorporated by reference to
Exhibit 4.16 to the Form 10-K.
4.17 Deed of Trust, Assignment of Rents and Security Agreement dated
as of February 17, 1994 by and among Lady Luck Biloxi, Inc., Jim
B. Tohill and First Trust National Association. Incorporated by
reference to Exhibit 4.17 to the Form 10-K.
4.18 Deed of Trust, Assignment of Rents and Security agreement dated
as of February 17, 1994 by and among Lady Luck Mississippi, Inc.,
Jim B. Tohill and First Trust National Association. Incorporated
by reference to Exhibit 4.18 to the Form 10-K.
4.19 Assignment of Option dated as of February 17, 1994 by Lady Luck
Gulfport, Inc. in favor of First Trust National Association.
Incorporated by reference to Exhibit 4.19 to the Form 10-K.
4.20 Assignment of Option dated as of February 17, 1994 by Lady Luck
Kimmswick, Inc. in favor of First Trust National Association.
Incorporated by reference to Exhibit 4.20 to the Form 10-K.
4.21 Assignment of Option dated as of February 17, 1994 by Lady Luck
Vicksburg, Inc. in favor of First Trust National Association.
Incorporated by reference to Exhibit 4.21 to the Form 10-K.
4.22 Stockholders Agreement dated as of April 1, 1993 by and among the
Lady Luck Gaming Corporation, Andrew H. Tompkins and all current
stockholders and warrant holders of Lady Luck Gaming Corporation.
Incorporated by reference to Exhibit 4.14 to the Form S-1.
4.23 Cash Collateral and Disbursement Agreement dated February 17,
1994 among First Trust National Association. the Company and the
Guarantors named therein. Incorporated by reference to Exhibit
4.18 to the Form 10-K.
4.24 First Amendment to Stockholders Agreement dated as of June 9,
1993, by and among Andrew H. Tompkins and the Stockholders named
therein. Incorporated by reference to Exhibit 4.24 to the
Registration Statement on Form S-4 (Registration No. 33-
91616)(the "Form S-4, No. 91616").
4.25 Second Supplemental Indenture dated as of March 17, 1995 by and
among Lady Luck Gaming Finance Corporation, the Guarantors named
therein and First Trust National Association. Incorporated by
reference to Exhibit 4.25 to the Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1995 by Lady Luck Gaming
Corporation.
4.26 Third Supplemental Indenture by and among Lady Luck Gaming
Finance Corporation, Lady Luck Quad Cities, Inc. and First Trust
National Association. Incorporated by reference to Exhibit 4.26
to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 by Lady Luck Gaming Corporation the ("1995 Form
10-K.")
4.27 Fourth Supplemental Indenture by and among Lady Luck Gaming
Finance Corporation, the Guarantors named therein and First Trust
National Association. Incorporated by reference to Exhibit 4.27
to the 1995 Form 10-K.
4.28 Specimen Common Stock Certificate. Incorporated by reference to
Exhibit 4.15 to the Form S-1.
4.29 Security Agreement (Lady Luck Gaming Finance Corporation) by and
between Lady Luck Gaming Finance Corporation and First Trust
National Association. Incorporated by reference to Exhibit 4.29
to the 1995 Form 10-K
4.30 Security Agreement (Lady Luck Gaming Corporation) by and between
Lady Luck Gaming Corporation and First Trust National
Association. Incorporated by reference to Exhibit 4.30 to the
1995 Form 10-K
4.31 Pledge Agreement between Lady Luck Quad Cities, Inc. and First
Trust National Association. Incorporated by reference to Exhibit
4.31 to the 1995 Form 10-K
10.1.Lease for parking lot in Biloxi, Mississippi dated May 28, 1993
by and between John M. Mladnick and Lady Luck Biloxi, Inc.
Incorporated by reference to Exhibit 10.18 to the Form S-1.
10.2 Lease Agreement dated January 12, 1994 by and among Tyrone J.
Gollott, Gary F. Gollott, Thomas H. Gollott and Lady Luck Biloxi,
Inc. Incorporated by reference to Exhibit 10.10 to the Form 10-K.
10.3 Lease Agreement dated January 17, 1994 by and between Michael S.
Sinopoli and Lady Luck Biloxi, Inc. Incorporated by reference to
Exhibit 10.11 to the Form 10-K.
10.4 Lease for Parcel in Biloxi, Mississippi dated July 25, 1993 by
and among Lady Luck Biloxi, Inc. and Joe G., Jackie R. and John
Brett Aldrich. Incorporated by reference to Exhibit 10.12 to the
Form S-1.
10.5 Lease for casino site in Tunica, Mississippi, dated March 18,
1993 between Lady Luck Tunica, Inc. and D.C. Parker and Richard
B. Flowers. Incorporated by reference to Exhibit 10.5 to the Form
S-1.
10.6 Lease for casino site in Gulfport, Mississippi dated October 5,
1992 between Lady Luck Gulfport, Inc. and Mississippi Coast
Marine Inc. Incorporated by reference to Exhibit 10.6 to the Form
S-1.
10.7 Lease in Gulfport, Mississippi dated October 1, 1993 by and
between Coast Materials Company and Lady Luck Gulfport, Inc.
Incorporated by reference to Exhibit 10.15 to the Form 10-K.
10.8 Agreement to Lease in Gulfport, Mississippi dated September 23,
1993 by and among Robert C. Fielding, Lady Luck Gulfport, Inc.
and Lady Luck Gaming Corporation. Incorporated by reference to
Exhibit 10.16 to the Form 10-K.
10.9 Leases of part of casino site in Natchez, Mississippi dated
October 29, 1991 between Lady Luck Mississippi, Inc. and Silver
Land, Inc. Incorporated by reference to Exhibit 10.7 to the Form
S-1.
10.10Silver Land, Inc. Amended and Restated Lease Agreement dated
December 31, 1992. Incorporated by reference to Exhibit 10.8 to
the Form S-1.
10.11Lease for part of casino site in Natchez, Mississippi dated June
30, 1992 by and between Lady Luck Mississippi, Inc. and the City
of Natchez and amendment thereto dated October 27, 1992.
Incorporated by reference to Exhibit 10.9 to the Form S-1.
10.12Lease for part of casino site in Natchez, Mississippi dated June
30, 1992 by and between Lady Luck Mississippi, Inc. and the City
of Natchez and amendment thereto dated October 27, 1992.
Incorporated by reference to Exhibit 10.10 to the Form S-1.
10.13Sublease Contract dated August 13, 1993 by and between Callon
Petroleum Company and Lady Luck Mississippi, Inc. Incorporated by
reference to Exhibit 10.22 to the Form 10-K.
10.14Lease for parking lot in Central City, Colorado dated June 1,
1993 by and among Gold Coin Incorporated and J. Scott Bradley and
Phyllis M. Brown (Lots 1-12). Incorporated by reference to
Exhibit 10.21 to the Form S-4 Registration Statement previously
filed under the Securities Act (No. 33-65232) (the "Form S-4, No.
65232").
10.15Lease for parking lot in Central City, Colorado dated June 1,
1993 by and among J. Scott Bradley and Phyllis M. Brown and Gold
Coin Incorporated (Lots 13-21). Incorporated by reference to
Exhibit 10.22 to the Form S-4, No. 65232.
10.16Agreement of Option, Purchase and Sale and Joint Escrow
Instructions for Vicksburg, Mississippi casino site dated May 21,
1993 by and between Lady Luck Vicksburg, Inc. and Vicksburg
Terminal Company, Inc. Incorporated by reference to Exhibit 10.11
to the Form S-1.
10.17Option to purchase site in Jefferson County, Missouri dated July
8, 1993 by and between Lady Luck Kimmswick, Inc. and Donald J.
Branch. Incorporated by reference to Exhibit 10.17 to the Form
S-1.
10.18Lease in Coahoma, Mississippi dated November 30, 1993 (sic) by
and among Roger Allen Johnson, Jr., Charles Bryant Johnson and
Magnolia Lady, Inc. Incorporated by reference to Exhibit 10.28 to
the Form 10-K.
10.19Agreement dated March 19, 1994 by and among Lady Luck Gaming
Corporation, Old River Development, Inc. and D.J. Brata.
Incorporated by reference to Exhibit 10.29 to the Form 10-K.
10.20Lady Luck Gaming Corporation Employee Stock Option Plan.
Incorporated by reference to Exhibit 10.31 to the Form 10-K.
10.21Indemnification Agreement dated April 28, 1993 by and among
Terry Christensen, Barry Fink, Kimberly Harrison, Colorado Casino
Properties Investment L.P. and Lady Luck Gaming Corporation.
Incorporated by reference to Exhibit 10.13 to the Form S-1.
10.22$2,300,000 Promissory Note of Gold Coin Incorporated dated April
28, 1993. Incorporated by reference to Exhibit 10.14 to the Form
S-1.
10.23Warrant Agreement dated April 1, 1993. Incorporated by reference
to Exhibit 10.15 to the Form S-1.
10.24Amendment to Agreement dated March 19, 1994 (sic) by and among
Lady Luck Gaming Corporation, Old River Development, Inc. and
D.J. Brata. Incorporated by reference to Exhibit 10.32 to the
Form S-4 registration statement filed under the Securities Act
(No. 33-77184) (the "Form S-4, No. 77184").
10.25Option Agreement dated April 28, 1994 by and between
Seven-Thirty, Inc. and Lady Luck Scott City. Inc. Incorporated by
reference to Exhibit 10.33 to the Form S-4, No. 77184.
10.26Lease dated September 13, 1993 by and between Nancy Harris
Holmes, James S. Williams, Tempe Kyser Adams and Ben C. Adams as
Trustee under the Trust Agreement dated September 9, 1993, as
Lessor and D.J. Brata as Lessee. Incorporated by reference to
Exhibit 10.34 to the Quarterly Report of Form 10-Q for the
quarter ended June 30, 1994 of Lady Luck Gaming Corporation (the
"June 30, 1994 Form 10-Q.")
10.27Assignment of Lease Agreement dated September 30, 1993 by and
between D.J. Brata, as assignor, and Old River Development, Inc.,
as assignee. Incorporated by reference to Exhibit 10.35 to the
Form 10-Q for the quarter ended June 30, 1994.
10.28Modification of Lease Agreement dated February 8, 1994 by and
between Old River Development, Inc., Lady Luck Tunica, Inc. and
Nancy Harris Holmes, James S. Williams, Tempe Kyser Adams and Ben
C. Adams, Jr., as Trustee under the Trust dated September 9,
1993. Incorporated by reference to Exhibit 10.36 to the Form 10-Q
for the quarter ended June 30, 1994.
10.29Second Modification of Lease Agreement dated April 7, 1994 by
and between Old River Development, Inc., Lady Luck Gaming
Corporation and Nancy Harris Holmes, James S. Williams, Tempe
Kyser Adams and Ben C. Adams, Jr., as Trustee under the Trust
Agreement dated September 9, 1993. Incorporated by reference to
Exhibit 10.37 to the June 30, 1994 Form 10-Q.
10.30Escrow Agreement Concerning Agreement of Option and Purchase and
Sale of Property dated April 21, 1994 by and among Vicksburg
Terminal Company, Inc. and Lady Luck Vicksburg, Inc., including
Exhibit A, Agreement of Option, Purchase and Sale and Joint
Escrow Instructions. Incorporated by reference to Exhibit 10.38
to the June 30, 1994 Form 10-Q.
10.31Agreement dated July 18, 1994 by and among Green Bridge Company,
an Iowa corporation, Bettendorf Riverfront Development Company,
L.C., an Iowa limited liability company, Lady Luck Casino, Inc.,
a Nevada corporation, and Lady Luck Gaming Corporation.
Incorporated by reference to Exhibit 10.40 to the June 30, 1994
Form 10-Q.
10.32Management Agreement dated August 15, 1994 by and among the
Pueblo of Santa Ana, (the "Pueblo"), a federally recognized
Indian Tribe, Santa Ana Nonprofit Enterprise, an enterprise at
the Pueblo, and Lady Luck New Mexico, Inc., a New Mexico
corporation. Incorporated by reference to Exhibit 10.41 to the
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994 of Lady Luck Gaming Corporation.
10.33Letter Agreement dated October 24, 1994 by and between Alain
Uboldi and Lady Luck Gaming Corporation. Incorporated by
reference to Exhibit 10.41 to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 by Lady Luck Gaming
Corporation (the "1994 Form 10-K").
10.34Letter Agreement dated October 24, 1994 by and between Rory J.
Reid and Lady Luck Gaming Corporation. Incorporated by reference
to Exhibit 10.42 to the 1994 Form 10-K.
10.35Amended and Restated Joint Venture Agreement by and among Old
River Development, Inc., D.J. Brata, Bally's Operator, Inc., a
Delaware corporation, Bally's Tunica, Inc., a Mississippi
corporation and Bally's Olympia Limited Partnership, a Delaware
limited partnership dated February 24, 1995. Incorporated by
reference to Exhibit 2(a) to the Form 8-K of Lady Luck Gaming
Corporation dated February 28, 1995.
10.36Stock Exchange Agreement dated December 30, 1994 by and between
Grace Brothers, Ltd. an Illinois limited partnership and Lady
Luck Gaming Corporation. Incorporated by reference to Exhibit
10.44 to the 1994 Form 10-K.
10.37Stock Exchange Agreement dated February 17, 1995 by and between
Grace Brothers, Ltd. an Illinois limited partnership and Lady
Luck Gaming Corporation. Incorporated by reference to Exhibit
10.45 to the 1994 Form 10-K.
10.38Real Estate Lease dated January 12, 1995 by and among
Greenbridge Company, an Iowa corporation, Bettendorf Riverfront
Development Company, L.C., an Iowa limited liability company,
Lady Luck Bettendorf, L.C., an Iowa limited liability company and
Lady Luck Quad Cities, Inc., a Delaware corporation. Incorporated
by reference to Exhibit 10.46 to the 1994 Form 10-K.
10.39Operating Agreement dated December 2, 1994 by and between Lady
Luck Quad Cities, Inc., a Delaware corporation and Bettendorf
Riverfront Development Company, L.C., an Iowa limited liability
company. Incorporated by reference to Exhibit 10.47 to the 1994
Form 10-K.
10.40Charter Agreement dated December 9, 1994 by and among Lady Luck
Gaming Corporation, Lady Luck Kimmswick, Inc. and Lady Luck
Bettendorf, L.C., an Iowa limited liability company. Incorporated
by reference to Exhibit 10.48 to the 1994 Form 10-K.
10.41Memorandum of Intent dated February 22, 1995 by and among C-A
International Associates, a Virginia limited partnership and Lady
Luck Mississippi, Inc. Incorporated by reference to Exhibit 10.50
to the 1994 Form 10-K.
10.42Agreement of General Partnership dated as of November 30, 1995
by and among Lady Luck Kimmswick, Inc., a Missouri corporation
and Davis Gaming Company II. Incorporated by reference to Exhibit
2 to the Form 8-K of Lady Luck Gaming Corporation dated December
1, 1995.
10.43Memorandum of Understanding between Lady Luck Biloxi, Inc., Lady
Luck Gaming Corporation and Algernon Blair, Inc. Incorporated by
reference to Exhibit 10.58 to the Form S-4, No. 91616.
10.44Contribution and Sale Agreement dated February 5, 1996 between
Lady Luck Mississippi, Inc. and Holstar, Inc. Incorporated by
reference to Exhibit 2 to the Form 8-K of Lady Luck Gaming
Corporation dated February 5, 1996.
10.45License Agreement dated as of January 1, 1996 among Lady Luck
Casino, Inc., Lady Luck Gaming Corporation and the other parties
listed on the signature pages thereto. Incorporated by reference
to Exhibit 10.45 to the 1995 Form 10-K.
10.46Services Agreement dated as of January 1, 1996 among Lady Luck
Gaming Corporation and Marco Polo International Marketing, Inc.
Incorporated by reference to Exhibit 10.46 to the 1995 Form 10-K.
10.47Office Lease dated as of January 1, 1996 among Lady Luck Gaming
Corporation and Gemini, Inc. Incorporated by reference to Exhibit
10.47 to the 1995 Form 10-K.
10.48Assignment and Assumption Agreement dated as of January 1, 1996
among Lady Luck Gaming Corporation and Lady Luck Casinos, Inc.
Incorporated by reference to Exhibit 10.48 to the 1995 Form 10-K.
10.49Contract for the Purchase and Sale of Real Estate and Personal
Property dated as of April 12, 1996 by and between River Park
Hotel Group, Inc. and Lady Luck Mississippi, Inc. Incorporated by
reference to Exhibit 10.49 to the Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996 of Lady Luck Gaming
Corporation.
10.50Memorandum of Understanding dated November 1996 between Gold
Coin, Inc., a Delaware corporation and Colorado Gaming, Inc., a
Colorado corporation.
21 Subsidiaries of Lady Luck Gaming Corporation.
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
(c) Exhibits.
(d) Financial Statement Schedules
Lady Luck Bettendorf, L.C.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LADY LUCK GAMING CORPORATION
By /s/ Andrew H. Tompkins
Andrew H. Tompkins
(Chairman of the Board and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
/s/ Andrew H. Tompkins March 25, 1997
Andrew H. Tompkins
(Chairman of the Board, Principal Executive Officer and Director)
/s/ Alain Uboldi March 25, 1997
Alain Uboldi
(President, Chief Operating Officer and Director)
/s/ Lawrence P. Tombari March 25, 1997
Lawrence P. Tombari
(Senior Vice President, Chief Financial Officer and
Principal Financial Officer)
/s/ James D. Bowen March 25, 1997
James D. Bowen
(Vice President Finance and Principal Accounting Officer)
/s/ Rory J. Reid March 25, 1997
Rory J. Reid
(Senior Vice President, General Counsel, Secretary and Director)
/s/ Minxin Pei March 25, 1997
Minxin Pei
(Director)
/s/ Anthony J. Drexel Biddle III March 25, 1997
Anthony J. Drexel Biddle III
(Director)
/s/ James A. Bilbray March 25, 1997
James A. Bilbray
(Director)
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding (the "Memorandum") is entered into as of
this 1st day of November, 1996, by and between Gold Coin Incorporated, a
Delaware corporation, d/b/a Lady Luck Gold Coin Gambling Hall & Saloon ("Lady
Luck"), and BWCC, Inc. a Delaware corporation, d/b/a Bullwhackers Central City
("Bullwhackers").
WHEREAS the parties hereto are desirous of combining and making capital
improvements to their respective gaming establishments which currently operate
on adjacent real property in Central City, Colorado;
WHEREAS, Lady Luck is willing to provide the capital for such improvements
and has expertise in the design and construction of projects similar to the
improvements that the parties intend to make to their respective facilities;
WHEREAS, Bullwhackers is willing to provide the resources and expertise
necessary for the management of the joint operation of the subsequent to the
completion of such capital improvements, and
WHEREAS, the parties desire to enter into this Memorandum to set forth a
preliminary basis upon which this transaction may ultimately be consummated, and
to provide a basis upon which both parties can undertake a more complete due
diligence investigation of the matters described herein. Both parties
acknowledge that this Memorandum is not intended to be a complete description of
the transaction, and that the entire transaction is subject to the execution of
Definitive Agreements (as defined below);
NOW, THEREFORE, and in consideration of the above, the parties hereby
express their intent, subject to the conditions and contingencies hereof, to
enter into agreements consistent with the following terms:
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<PAGE>
I. Capital Improvements.
A. The parties shall make the improvements necessary to combine the
existing Lady Luck operation with the existing Bullwhackers operation
by demolishing and removing all or part of the walls that currently
separate such operations. The parties shall also reconfigure and
renovate the interior of their existing operations so as to
accommodate their joint operation. The parties further anticipate that
improvements to Lady Luck's existing gaming equipment shall also be
made. For purposes of this Memorandum, the foregoing improvements
shall hereafter be referred to as the "Capital Improvements" and the
facility resulting from the combination of the existing Lady Luck
operation and the existing Bullwhacker operation shall hereafter be
referred to as the "Joint Facility".
B. Bullwhackers and Lady Luck shall allow the Joint Facility to use all
of their respective assets as of the date hereof, including, without
limitation, the following: (i) the real property, and all their
respective rights to lease real property, required for their
respective operations; (ii) the furniture, fixture and equipment and
any other tangible personal property, and all their respective rights
to lease tangible personal property, required for their respective
operations; and (iii) the permits, licenses, applications, plans and
other intangible assets related to their respective operations,
provided such intangible assets, including specifically, the gaming
and liquor licenses, can be transferred to the Joint Facility. If the
Executive Committee (as defined below) determines not to use any
specific property, whether real, personal or intangible, in connection
with the Joint Facility, the owner of such property shall be solely
responsible for removing, storing, destroying, selling or otherwise
disposing of such property. None of the respective companies debt of
lease obligations are being transferred to the Joint Facility. Should
either of the parties default on any of their respective debt or lease
obligations, the non-defaulting party shall have no obligation
whatsoever to cure or otherwise remedy such default. If the
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<PAGE>
default relates to property, whether real, personal or intangible,
being used by the Joint Facility, or for which a third party has
secured rights, the non-defaulting party may immediately terminate its
participation in the Joint Facility and may take steps to replace the
removed walls and return to operating its independent facility. Each
party shall provide to the other sufficient evidence of any required
consents from or relating to any lender third-party mortgagee or
interest holder in any property to be used by the Joint Facility.
C. The parties shall design, construct and complete the Capital
Improvements in accordance with plans and specifications (the
"Plans and Specifications"). The Capital Improvements shall be
constructed in a diligent and efficient manner according to a
schedule (the "Capital Improvement Schedule"). The Capital
Improvements will be constructed substantially in accordance with
a budget (the "Capital Improvement Budget"). The Plans and
Specifications, Capital Improvement Schedule and Capital
Improvement Budget shall be prepared and approved in form and
substance satisfactory in all respects to Lady Luck and
Bullwhackers and their approval shall be a condition precedent to
entering into the Definitive Agreements. In no event shall the
Capital Improvement Budget exceed ONE MILLION FIVE HUNDRED
THOUSAND DOLLARS ($1,500,000). The money for the Capital
Improvement Budget shall be placed in and disbursed in accordance
with an Escrow Agreement to be entered into by the parties as one
of the Definitive Agreements. All Capital Improvements shall be
performed pursuant to customary construction documents reasonably
approved by both parties, including a guaranteed maximum price
contract with the general contractor. Any change orders to the
Capital Improvement Budget shall be approved by the Executive
Committee (as defined below). In the absence of an approved
change order, Lady Luck shall be solely and exclusively
responsible for any cost overruns.
D. Subject to Bullwhackers approval in its sole and absolute
discretion, Lady Luck shall
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be responsible for :(i) the design and construction of the
Capital Improvements; (ii) the selection, approval, hiring and
discharge of engineers, architects, contractors, subcontractors,
professionals and other required third parties; (iii) the
negotiation and execution of contracts, agreements, easements and
other such documents with third parties with respect to the
Capital Improvements; and (iv) the preparation of budgets and
cost estimates. Approval of all of the foregoing shall be
conditions precedent to entering into the Definitive Agreements.
E. Upon satisfaction or waiver of Contingencies (as defined below),
Lady Luck shall provide the capital required to make the Capital
Improvements in accordance with the Capital Improvement Budget
and the Escrow Agreement. In the event the parties mutually
determine it would be in the best interest of the Joint Facility
to remodel and convert Lady Luck's existing restaurant area to
some other use, the Bullwhackers shall provide fifty percent
(50%) of the capital requited for such improvements.
2. Management of the Joint Facility.
A. The general business and affairs of the Joint Facility shall be
managed by an Executive Committee (or similar body) (the
"Executive Committee") consisting of four members, two of which
shall be appointed by Lady Luck and two of which shall be
appointed by Bullwhackers. A unanimous vote of the Executive
Committee shall be required for all major decisions including,
without limitation, construction budgets, design decisions,
operating budgets and similar matters and for all the following
matters: (i) any decision by the Joint Facility to enter into a
new line of business; (ii) any decision to postpone, defer or
cancel any required distribution; (iii) any decision to increase
capital expenditures at the Joint Facility; (iv) any transaction
between the Joint Facility and Lady Luck, Bullwhackers or any of
their respective affiliates (other than the Management Agreement
(as defined below)); (v) any amendment to the Definitive
Agreements; (vi) any decision to enter any agreement
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or series of agreements for consideration in aggregate amount in
excess of $25,000 regarding the operation of the Joint Facility;
(vii) any decision by Bullwhackers under the Management Agreement
to sell any particular asset utilized in the operation of the
Joint Facility in excess of $25,000 (the individual owner of such
asset shall be allowed to keep the proceeds therefrom); (viii)
any decision to enter any employment agreement or other
arrangement which involves annual compensation in excess of
$50,000; and (ix) any decision to consolidate, merge or otherwise
transfer the assets of Lady Luck or Bullwhackers to a third
party. The Executive Committee shall appoint a Secretary who
shall ensure that all members of the Executive Committee receive
appropriate prior notice of the Committee's meetings and who
shall prepare minutes of each meeting to be approved by the
Executive Committee. With respect to each matter that comes
before the Executive Committee, each member shall have one vote.
B. The day-to-day operations of the Joint Facility shall be managed
by Bullwhackers pursuant to an agreement (the "Management
Agreement"), which shall provide for a base management fee equal
to ONE HUNDRED TWENTY THOUSAND DOLLARS ($120,000) annually
payable in monthly installments of TEN THOUSAND DOLLARS
($10,000). The Management Agreement shall be terminable upon: (i)
the bankruptcy or insolvency of Lady Luck or Bullwhackers, (ii)
the sale of all or substantially all of the assets of either Lady
Luck or Bullwhackers; or (iii) the material breach or failure of
Bullwhackers to satisfy certain reasonable performance standards
that are to be provided for in the Management Agreement. Upon a
termination of the Management Agreement, the parties may
immediately terminate their respective participation in the Joint
Facility and may take steps to replace the removed walls and
return to operating their independent facilities. Bullwhackers
shall not be required to achieve such performance standards in
the event of material adverse conditions, which conditions shall
be described in the Management Agreement, including construction
disruption.
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C. The Management Agreement shall require Bullwhackers to prepare a
budget for submission to the Executive Committee at least ninety
(90) days prior to the start of each fiscal year, which fiscal
year shall commence on the Commencement Date (as defined below)
and each anniversary thereof. The Joint Facility shall be managed
in accordance with such budget as approved by the Executive
Committee. The Management Agreement will provide, with certain
limitations to be more fully described therein, that Bullwhackers
shall indemnify Lady Luck for all liabilities and obligations
arising out of services provided by Bullwhackers. In the event
the EBITDA (as defined below) generated by operations at the
Joint Facility exceeds TWO MILLION SEVEN HUNDRED THOUSAND DOLLARS
($2,7000,000) during any fiscal year during the term of the
Management Agreement, then Bullwhackers shall receive an
additional fee equal to FORTY FIVE THOUSAND DOLLARS ($45,000).
D. The parties will need to meet and confer and agree upon the
entity which employs the employees of the Joint Facility.
Bullwhackers shall be able to select in its sole discretion the
employees which it determines are necessary to operate the Joint
Facility, so long as the expenses associated with such employees
are consistent with the budget approved by the Executive
Committee.
3. Distributions.
A. Distributions of the EBITDA generated by the operations of the
Joint Facility shall be made from time to time upon approval of
the Executive committee, provided, however, in no event shall
such distributions be made less than on a quarterly basis. All
such distributions will be made in accordance with the following
priorities:
1. First, to Lady Luck, in an amount equal to the initial THREE
HUNDRED FIFTY THOUSAND DOLLARS ($350,000) of EBITDA (the
"Lady Luck
Page 6
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Preference") generated by the operation of the Joint
Facility, provided that the Capital Improvement Budget was
$1,5000,000. If less than the full $1,5000,000 was actually
used for the Capital Improvement Budget, the Lady Luck
Preference shall be reduced to 25% of the actual amount used
for the Capital Improvement Budget;
2. Second, after the payment of the Lady Luck Preference, the
next ONE MILLION DOLLARS ($1,000,000) of EBITDA (the
"Bullwhackers Preference") generated by the operation of the
Joint Facility shall be distributed to Bullwhackers;
3. Third, after the payment of the Lady Luck Preference and the
Bullwhackers Preference, the next FIVE HUNDRED THOUSAND
DOLLARS ($500,000.00) of EBITDA generated by the operation
of the Joint Facility shall be distributed twenty-five
percent (25%) to Lady Luck and seventy-five (75%) to
Bullwhackers (the "Secondary Preference");
4. Finally, after the payment of the Lady Luck Preference, the
Bullwhackers Preference and the Secondary Preference, the
remaining EBITDA generated by operations at the Joint
Facility shall be distributed in equal amounts to Lady Luck
and Bullwhackers (the "Final Preference").
5. EBITDA shall be completely defined in the Management
Agreement; however, for the purposes of this Paragraph,
"EBITDA" shall mean, for any year, the net income (or loss)
for such year (after deducting all Management Fees,
including the $45,000 bonus if applicable, and excluding
interest income, extraordinary gains and losses, gains and
losses on the sale of assets, gains or losses arising out of
litigation awards or judgments, gains or losses arising out
of insurance proceeds and other nonrecurring or unusual
gains and
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losses) adjusted to add thereto (to the extent deducted from
net revenues in determining net income) interest expense,
income tax expense, and depreciation and amortization
expense (it being understood that preopening expenses shall
not be added thereto), all as determined in accordance with
generally accepted accounting principles, of Lady Luck and
Bullwhackers.
B. The Lady Luck Preference, Bullwhackers Preference Secondary
Preference and Final Preference are payable in quarterly
distributions for the period from the Commencement Date to the
first anniversary of the Commencement Date, at which point the
order of preferences, and the payments on account of each
preference, begin anew for each subsequent year in which the
Joint Facility has operations. The quarterly distributions may be
made based on reasonable estimates that will be reconciled at the
end of each year of operations of the Joint Facility. The Lady
luck Preference, Bullwhackers Preference and the Secondary
Preference were agreed to based on the assumption that the Joint
Facility would generate TWO MILLION SEVEN HUNDRED THOUSAND
DOLLARS ($2,700,000) of EBITDA per annum. In the event the
parties, based on their due diligence investigation, determine
that such assumption is not reasonable, then the amounts of the
aforementioned preferences may be adjusted upon the mutual
agreement of both parties.
C. Proper and complete books of account and other records of the
business of the Joint Facility shall be kept by or under the
supervision of Bullwhackers at the principal offices of
Bullwhackers and shall be open to inspection by Lady Luck or its
representatives at any time during business hours.
4. Buy/Sell Provision.
A. Lady Luck shall provide Bullwhackers a put option to sell it
assets, which option shall be exercised, if at all upon 120 days
prior written notice, at any time after the
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Joint Facility commences gaming operations (the "Commencement
Date"). The Exercise Price (as defined below) of such option
shall be discounted: twenty-five percent (25%) if exercised
within 180 days of the Commencement Date; twenty percent (20%) if
exercised more than 180 but less than 360 days from the
Commencement Date; and ten percent (10%) if exercised more than
360 but less than 540 days from the Commencement Date.
B. For purposes of this Sections of "Exercise Price" shall be an
amount equal to the greater of either (i) the book value of
Bullwhackers assets, or (ii) an amount equal to the sum of (Y)
five (5) times Bullwhackers' EBITDA for the portion of trailing
twelve-months in which the Joint Facility was not operational,
plus (Z) two and one- half (2.5) times the Joint Facility's
EBITDA for the portion of the trailing twelve- months in which
the Joint Facility was operational. The Exercise Price shall be
payable twenty-five percent (25%) in cash at closing with the
balance to be payable by Lady Luck in a manner to be agreed upon
and described in one of the Definitive Agreements, including,
potentially, through the payment to Bullwhackers of securities
issued by Lady Luck's parent corporation. In the event
Bullwhackers does not receive adequate assurances as to the
payment of Exercise Price, Bullwhackers may elect to immediately
terminate its participation in the Joint Facility and take steps
to replace the removed walls and return to operating its
independent facility.
C. Lady Luck shall have the option to purchase the assets of
Bullwhackers and Bullwhackers shall have the option to purchase
the assets of Lady Luck, which option shall be exercised, if at
all, upon 120 days written notice, at any time after the
Commencement Date. The consideration paid by the party exercising
such option shall be calculated in accordance with Paragraph 5(B)
hereof, and will in either the event of the exercise of the put
option to sell or option to purchase, be subject to the
applicable consent of third-party lenders, mortgagees and
interest holders.
Page 9
<PAGE>
5. The Contingencies.
Notwithstanding anything to the contrary contained herein, Lady Luck
and Bullwhackers acknowledge and agree that the parties' obligations
imposed pursuant to the terms and conditions set forth in this
Memorandum are expressly subject to the satisfaction or waiver of the
following contingencies (collectively the "Contingencies"):
A. All required governmental approvals authorizing the construction
and operation of the Joint Facility from any and all applicable
governmental agencies being issued to Lady Luck and Bullwhackers
and remaining in full force and effect in form and substance
satisfactory to the parties. Specifically, the operation of the
Joint Facility (including, specifically, the establishment of the
Executive Committee and the Management Agreement) shall be
subject to the approval of the Colorado Limited Gaming control
Commission and the applicable body responsible for the issuance
of a liquor license. The parties will need to determine which
entity holds the applicable licenses and what will be done with
the current licenses held by each party. Lady Luck acknowledges
that there is a three license limitation in Colorado for both
gaming and liquor licenses and the transaction will have to be
structured to ensure that at no time will Bullwhackers or its
affiliates be in violation of such regulatory restriction.
B. The Management Agreement and any other definitive agreement
required by the transaction contemplated hereby, including,
without limitation, the Escrow Agreement, the Plans and
Specifications, the Capital Improvements Budget, the Capital
Improvement Schedule, construction documents, etc. (collectively,
the "Definitive Agreements") being entered by and between Lady
Luck and Bullwhackers.
C. The timely completion of the plans and specifications for the
Capital Improvements
Page 10
<PAGE>
and the Capital Improvement Budget.
D. The Parties obtaining any required consent or amendment to any
existing obligations to third parties required to consummate the
transactions contemplated hereby in form and substance
satisfactory to the parties, and the obtaining of final
authorization from the board of directors of each company.
6. Miscellaneous
A. The terms and conditions of this Memorandum can neither be
substantially modified nor limited except by mutual written
agreement between Lady Luck and Bullwhackers.
B. THIS MEMORANDUM IS TO BE GOVERNED BY AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE LAWS OF THE STATE OF COLORADO.
C. Bullwhackers is not the agent or representative of Lady Luck, and
Lady Luck is not the agent or representative of Bullwhackers.
Nothing herein or the acts of the parties hereto shall be
construed to create a partnership or joint venture between Lady
Luck and Bullwhackers.
D. This Memorandum may be executed in any manner and in any number
of counterparts with the same effect as if the parties hereto
have signed the same document. All such counterparts shall
constitute one instrument.
E. In the event of any controversy, claim or dispute between the
parties hereto or arising out of or related to this Memorandum or
the breach thereof, the prevailing party shall be entitled to
recover reasonable attorneys' fees, court costs and expenses
incurred
Page 11
<PAGE>
related thereto, in addition to any other remedy in law or in
equity.
F. In connection with the transactions contemplated by this
Memorandum, Lady Luck will be furnishing to Bullwhackers and
Bullwhackers will be furnishing to Lady Luck certain information
which is either non-public, confidential or proprietary in
nature. Each party agrees that all such information furnished or
otherwise obtained directly or indirectly, by it its directors,
officers, partners, employees, agents or representative,
including, without limitation, attorneys accountants, partners
experts and consultants (collectively "Representatives") and all
reports, analysis, compilations, data, studies or other documents
prepared by either party or its Representatives containing or
based, in whole or in part, on any such furnished information
(collectively, the "Information") will be kept strictly
confidential by each party and its Representatives and will not,
without the prior written consent of the party providing the
Information, be disclosed to any other individual, corporation,
partnership, joint venture, trust or association in any manner
whatsoever, in whole or in part.
The Information will not be used by Lady Luck, Bullwhackers or
their Representatives, directly or indirectly, for any purpose
other than evaluating this transaction. Each party also agrees
that it will not deliver any of the Information to any
Representative that has not been informed of, and agrees to abide
by, the terms of this paragraph. Each party agrees that it will
obtain the prior approval of the other party regarding any press
releases, public statements or other public communications
regarding this transaction prior to it dissemination; provided
that if either party is advised by counsel that it is legally
obligated to issue a press release, such party may issue a press
release after notice to and consultation with the other party.
Each party agrees that a breach of this paragraph would
irreparably injure the other party and such other party shall be
entitled to equitable relief, including injunctive relief, in the
event of such a breach provided that such remedy shall not be
deemed to be the
Page 12
<PAGE>
exclusive remedy for a breach and shall be in addition to all
other remedies available at law or equity.
G. Whether or not the transactions contemplated hereby are
consummated, each party will pay its own costs and expenses,
including fees and disbursements of its counsel and accountants.
H. Upon execution of this Memorandum, the parties and their
respective affiliates agree to refrain from carrying on a
business, either directly or by employment, by consulting or
otherwise, which competes with or which is similar to the gaming,
hotel and resort business operation and development of the Joint
Facility and which is within the geographical perimeter of
Central City, Colorado. Notwithstanding the foregoing, nothing
herein is intended to affect in any manner affiliated companies
of Bullwhackers from operating existing and future gaming
operations in Black Hawk or Cripple Creek, Colorado. This
provision shall not prohibit any party or principal of a party
from holding stock in a publicly-held corporation amounting to
less than five (5%) of the outstanding shares. The parties are
not restricted from competing with the joint facility outside the
geographical area described above and is under no duty or
obligation to offer any similar business opportunity to the other
party outside of such area.
I. Lady Luck and Bullwhackers shall be allowed to proceed with due
diligence regarding the Capital Improvements, the Capital
Improvements Budget, the Definitive Agreements, and the Joint
Facility for a period of 60 days from the date hereof (the "Due
Diligence Period"), which period may be shortened or lengthened
upon the mutual consent of both parties. After the expiration of
the Due Diligence Period, and provided the parties do not
consummate the transaction described herein, this Memorandum and
all obligation hereunder (except as provided in Paragraph 6F),
shall terminate and be of no further force of effect.
Page 13
<PAGE>
J. Except as provided in Paragraph 6F, which is intended to create
enforceable agreements amount the parties hereto, this Memorandum
is only a statement of intent and does not constitute a binding
agreement amount the parties, nor shall it be deemed to be an
agreement to agree. The proposal set forth in this Memorandum is
subject to the Contingencies, and, among other things, due
diligence, the approval of the Boards of Directors of Lady Luck
and Bullwhackers and the execution of the Definitive Agreements
in form and substance satisfactory in al respects to Lady Luck
and Bullwhackers and their respective counsel.
IN WITNESS WHEREOF, The parties have executed this Memorandum as of the day
and year first above written.
BWCC, INC.
Stephen J. Szapor, Jr.
BY: /s/ Stephen J. Szapor, Jr.
Title: President
GOLD COIN INCORPORATED
Andrew H. Tompkins
BY: /s/ Andrew H. Tompkins
Title: President
Page 14
<TABLE>
<CAPTION>
Exhibit 21
SUBSIDIARIES OF LADY LUCK GAMING CORPORATION
<S> <C> <C> <C> <C> <C>
State of Date of Fiscal Federal % of
Company Name Incorporation Incorp. Y.E. ID# Ownership
Subsidiaries of Lady Luck Gaming Corporation
Lady Luck Gaming Finance Corp. Colorado 02-16-93 12-31 88-0295603 100%
Delaware 03-09-93
Lady Luck Lawrenceburg Development Co. Indiana 01-26-94 12-31 88-0358252 100%
LLDC, Inc. Nevada 11-15-93 12-31 88-0313366 100%
Lady Luck Development Corporation, Inc.
Subsidiaries of Lady Luck Gaming Finance Corporation
Gold Coin Incorporated Delaware 02-24-93 12-31 84-1223906 100%
Lady Luck Quad Cities, Inc. Delaware 09-08-94 12-31 42-1426966 100%
Blue Sea Development, Inc. Mississippi 04-17-92 12-31 88-0286833 100%
Hole Development, Inc. Mississippi 01-22-92 12-31 58-2012923 100%
Lady Luck Biloxi, Inc. Mississippi 04-02-92 12-31 88-0285242 100%
Lady Luck Gulfport, Inc. Mississippi 09-03-92 12-31 88-0289741 100%
Lady Luck Mississippi, Inc. Mississippi 08-21-91 12-31 88-0277687 100%
Lady Luck Tunica, Inc. Mississippi 07-09-92 12-31 88-0289742 100%
Lady Luck Vicksburg, Inc. Mississippi 02-10-92 12-31 88-0284406 100%
Magnolia Lady, Inc. Mississippi 05-25-93 12-31 88-0301634 100%
Old River Development, Inc. Mississippi 09-29-93 12-31 64-0837159 100%
Lady Luck Kimmswick, Inc. Missouri 07-12-93 12-31 43-1653661 93%
Lady Luck Scott City, Inc. Missouri 03-21-94 12-31 43-1676950 93%
Lady Luck New Mexico, Inc. New Mexico 08-18-94 12-31 85-0424128 100%
Lady Luck Gaming Reservations, Inc. Nevada 08-19-96 12-31 88-0366986 100%
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at December 31, 1996 and the
Consolidated Statement of Operations for the Year Ended December 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000921178
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 15,490
<SECURITIES> 0
<RECEIVABLES> 1,621
<ALLOWANCES> 345
<INVENTORY> 1,198
<CURRENT-ASSETS> 20,584
<PP&E> 201,855
<DEPRECIATION> 28,736
<TOTAL-ASSETS> 223,718
<CURRENT-LIABILITIES> 19,892
<BONDS> 181,081
16,430
0
<COMMON> 29
<OTHER-SE> 6,286
<TOTAL-LIABILITY-AND-EQUITY> 223,718
<SALES> 161,707
<TOTAL-REVENUES> 174,234
<CGS> 65,941
<TOTAL-COSTS> 65,941
<OTHER-EXPENSES> 69,143
<LOSS-PROVISION> 194
<INTEREST-EXPENSE> 22,170
<INCOME-PRETAX> 6,208
<INCOME-TAX> 69
<INCOME-CONTINUING> 6,139
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,139
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
